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USD/CAD to Face 1.2800 Resistance on Dismal Canada Employment Report

USD/CAD to Face 1.2800 Resistance on Dismal Canada Employment Report

2015-07-10 08:00:00
David Song, Shuyang Ren,
Share:

- Canada Employment Expected to Contract for Third Time in 2015.

- Jobless Rate to Uptick to Annualized 6.9%- Highest Since September 2014 .

For more updates, sign up for David's e-mail distribution list.

Trading the News: Canada Net Change in Employment

A 10.0K decline in Canada Employment along with an uptick in the jobless rate may spur fresh monthly highs in USD/CAD should the data fuel speculation for another Bank of Canada (BoC) interest rate cut.

What’s Expected:

USD/CAD Canada Employment

Click Here for the DailyFX Calendar

Why Is This Event Important:

Despite the emergency rate cut in March, BoC Governor Stephen Poloz may come under increased pressure to provide additional monetary support at the July 15 meeting, and the central bank may adopt a more dovish tone going forward should the fundamental developments coming out of the Canadian economy highlight a slowing recovery.

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

International Merchandise Trade (MAY)

-2.55B

-3.34B

Business Outlook Future Sales (2Q)

12.00

8.00

Retail sales (MoM) (APR)

0.7%

-0.1%

Slowing demand from home and abroad may push Canadian firms to scale back on hiring, and a dismal employment report may generate a further appreciation in USD/CAD as it drags on interest rate expectations.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

New Housing Price Index (MoM) (MAY)

0.1%

0.2%

Housing Starts (JUN)

190.0K

202.8K

Existing Home Sales (MoM) (MAY)

--

3.1%

Nevertheless, the ‘soft landing’ in the housing market paired with the pickup in building activity may encourage a further expansion in the labor market, and a batch of positive data may prompt a larger pullback in USD/CAD as it gives the BoC greater scope to preserve its current policy stance throughout 2015.

How To Trade This Event Risk(Video)

Bearish CAD Trade: Employment Contracts, Jobless Rate Upticks

  • Need green, five-minute candle following the report for a potential long USD/CAD trade.
  • If market reaction favors a bearish loonie trade, buy USD/CAD with two separate position.
  • Set stop at the near-by swing low/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bullish CAD Trade: Canada Labor Report Exceeds Market Expectations

  • Need red, five-minute candle to consider a short USD/CAD position.
  • Carry out the same setup as the bearish Canadian dollar trade, just in the opposite direction.

Read More:

GBP/USD Outlook Mired by Bearish Momentum- June Low on Tap?

Which Currencies have been Affected by Chinese Equity Volatility?

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Near-term outlook remains bullish for USD/CAD as the RSI retains the bullish RSI momentum carried over from May, but the pair may face a larger pullback as the oscillator struggles to hold in overbought territory.
  • DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-short USD/CAD since June 18, but the ratio continues to hold at extremes as it sits at -3.05.
  • Interim Resistance: 1.2800 (38.2% expansion) to 1.2833 (March high)
  • Interim Support: 1.2360 (38.2% retracement) to 1.2380 (50% retracement)

Join DailyFX on Demandfor Real-Time Updates on the DailyFX Speculative Sentiment Index!

Impact that Canada Employment Change has had on CAD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAY 2015

06/05/2015 12:30 GMT

10.0K

58.9K

+97

-28

MayCanada Employment Change

USD/CAD Chart

Canada Employment increased a whopping 58.9K job in May to mark the largest advance since October 2014 after shedding 19.7K jobs during the previous month. Meanwhile, the unemployment rate held steady at an annualized 6.8% for the fourth consecutive month, with the participation rate rising to 65.9% from 65.8% in April. The rebound in employment may encourage the Bank of Canada (BoC) to retain its current policy throughout 2015 following the emergency rate cut in March, and signs of a stronger recovery may encourage Governor Stephen Poloz to adopt an improved outlook for the region as the economy gets on a more sustainable path. Nevertheless, USD/CAD climbed above the 1.2550 region as U.S. Non-Farm Payrolls (NFP) also exceeded market expectations to shows a 280K advance, but USD/CAD struggled to hold above 1.2500 handle during the North American trade to end the day at 1.2432.

--- Written by David Song, Currency Analyst and Shuyang Ren

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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