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USD/CAD to Eye Fresh March Lows on Upbeat Canada Employment Report

USD/CAD to Eye Fresh March Lows on Upbeat Canada Employment Report

2016-03-11 13:00:00
David Song, Shuyang Ren,
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- Canada Employment to Increase for First Time in 2016.

- Unemployment to Hold Steady at 7.2%, Participation Rate to Narrow to 65.8.

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Trading the News: Canada Net-Change in Employment

The near-term rebound in USD/CAD may largely unravel over the next 24-hours of trade should Canada’s Employment report highlight an improved outlook for the region and encourage the Bank of Canada (BoC) to move away from its easing cycle.

What’s Expected:

USD/CAD Canada Employment

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Why Is This Event Important:

A 10.0K rebound in Canada Employment may heighten the appeal of the loonie as BoC Governor Stephen Poloz adopts a more optimistic outlook for the real economy, and the central bank may endorse a wait-and-see approach throughout 2016 as the risks surrounding the region are ‘roughly balanced.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Housing Starts (FEB)

180.0K

212.6K

Gross Domestic Product (Annualized) (4Q)

0.0%

0.5%

Existing Home Sales (MoM) (JAN)

--

0.5%

The ongoing expansion in the housing market paired with signs of a stronger recovery may encourage Canadian firms to boost their labor force, and a marked rebound in job growth may push USD/CAD back towards the monthly low (1.3227) as it lifts interest-rate expectations.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Ivey Purchasing Manager Index (FEB)

58.0

53.4

Industrial Product Price (MoM) (JAN)

0.0%

0.5%

Retail Sales (MoM) (DEC)

-0.9%

-2.2%

However, higher factory-gate prices accompanied by the slowdown in private-sector consumption may drag on the labor market, and a dismal employment report may produce near-term headwinds for the Canadian dollar as it fuels speculation for a BoC rate-cut in 2016.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Canadian Employment Rebounds 10.0K or Greater

  • Need red, five-minute candle following the report to consider a short trade on USD/CAD.
  • If market reaction favors a bullish loonie trade, sell USD/CAD with two separate position.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to entry on remaining position once initial target is hit; set reasonable limit.

Bearish CAD Trade: Labor Report Fails to Meet Market Expectations

  • Need green, five-minute candle to favor a long USD/CAD trade.
  • Implement same setup as the bullish Canadian dollar trade, just in reverse.

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Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Long-term outlook for USD/CAD remains tilted to the upside as the pair preserves the ascending channel formation from back in 2014, but pair stands at risk of retracing the rebound from the October low (1.2831) as long as the Relative Strength Index (RSI) retains the bearish formation carried over from the previous month.
  • Interim Resistance: 1.4660 (78.6% retracement) to 1.4730 (78.6% expansion)
  • Interim Support: 1.2860 (78.6% retracement) to 1.2930 (61.8% expansion)

Avoid the pitfalls of trading by steering clear of classic mistakes. Review these principles in the "Traits of Successful Traders" series.

USD/CAD SSI
  • The DailyFX Speculative Sentiment Index (SSI) shows the retail crowd remains net-long USD/CAD since February 25, with the ratio hitting a near-term extreme in March as it climbed to +1.50.
  • The ratio remains off of recent extremes as it narrows to +1.21 ahead of Canada’s Employment report, with 55% of traders currently long, while open interest stands 3.7% below the monthly average.

Why and how do we use the SSI in trading? View our video and download the free indicator here

Impact that Canada Net Change in Employment has had on USD/CAD during the previous month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

JAN 2015

02/05/2016 13:30 GMT

5.5K

-5.7K

+46

+167

January 2016 Canada Net Change in Employment

USD/CAD Chart

Canada unexpectedly shed 5.7K jobs in January after adding a revised 24.1K positions the month prior. Moreover, the unemployment rate rose to 7.2% to mark the highest since recordkeeping began in 1996 even as the lkabor force participation rate held steady at 65.9% during the same period. The slowdown in job growth may prompt the Bank of Canada (BoC) to retain a cautious outlook for the region, but Governor Stephen Poloz may largely endorse a wait-and-see approach in 2016 after implementing the ‘insurance’ rate-cuts last year. The Canadian dollar lost ground throughout the North American trade, with USD/CAD climbing above the 1.3800 handle to close the day at 1.3909.

Read More:

Another Big Test Awaits USD/CAD

DailyFX Technical Focus: Nikkei 225 at Resistance

USD/JPY Technical Analysis: The Core FX Pair In The Risk ParadigmUSDOLLAR: Key Levels to Know Heading into NFPs, March Open

--- 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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