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Strong Ivey PMI to Limit USD/CAD Gains- RSI Divergence in Focus

Strong Ivey PMI to Limit USD/CAD Gains- RSI Divergence in Focus

2016-04-06 10:00:00
David Song, Strategist
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- Canada’s Ivey Purchasing Manager Index to Increase for First Time Since January.

- Will the Bank of Canada (BoC) Move Away From Its Easing Cycle?

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

Trading the News: Canada Ivey Purchasing Manager Index (PMI)

A rebound in Canada’s Ivey Purchasing Manager Index (PMI) may boost the appeal of the loonie and spark a near-term pullback in USD/CAD as highlights an improved outlook for the Canadian economy.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

A meaningful pickup in business spending may prompt BoC Governor Stephen Poloz to adopt a hawkish tone for monetary policy, and the central bank may show a greater willingness to move away from its easing cycle following the ‘insurance’ rate-cuts from 2015.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product (YoY) (JAN)

1.1%

1.5%

Industrial Product Price (MoM) (FEB)

-0.2%

-1.1%

Retail Sales (MoM) (JAN)

0.6%

2.1%

Signs of a stronger-than-expected recovery accompanied by easing factory-gate prices may encourage Canadian firms to spending, and a positive development may generate a bullish reaction in the loonie as market participants scale back bets for additional monetary support.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

International Merchandise Trade (FEB)

-0.90B

-1.91B

Business Outlook Future Sales (1Q)

--

16.00

CFIB Business Barometer (MAR)

--

52.3

However, subdued confidence paired with the slowdown in global trade may drag on private-sector activity, and a dismal PMI print may spur a further advance in USD/CAD as it fuels speculation for lower borrowing-costs.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Ivey PMI Advances to

  • Need to see red, five-minute candle following the release 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: Headline, Core CPI Miss 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.

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • The downward trend from earlier this year may largely unwind in the days ahead amid the failed attempts to close below 1.2930 (61.8% expansion) to 1.2980 (61.8% retracement), while a bullish divergence appears to be taking shape in the Relative Strength Index (RSI).
  • Interim Resistance: 1.3560 (100% expansion) to 1.3630 (38.2% retracement)
  • Interim Support: 1.2800 (38.2% expansion) to 1.2831 (October low)

Check out the short-term technical levels that matter for CAD/JPY heading into the report!

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

Impact that Canada Ivey PMI has had on USD/CAD during the last release

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

FEB

2016

03/04/2016

14:00 GMT

58.0

53.4

-26

-83

February 2016 Canada Ivey Purchasing Manager Index (PMI)

USD/CAD Chart

Canada’s Ivey Purchasing Manager Index (PMI) narrowed more-than-expected in February, with the figure slowing to 53.4 from 66.0 the month prior. A deeper look at the report showed the gauge for inventories contracting for the first time since October, while the Employment component slipped to 50.3 from 55.1 in January. The marked slowdown may encourage the Bank of Canada (BoC) to retain a cautious outlook for the region, but the central bank may scale back its willingness to further reduce the benchmark interest rate in 2016 as Prime Minister Justin Trudeau pledges to implement fiscal support to assist with the rebalancing of the real economy. USD/CAD edged higher following the dismal print, but the market reaction was short-lived, with the pair slipping back below the 1.3400 handle to end the day at 1.3310.

Read More:

S&P 500 - Rip-roar Recovery Inches Market Closer to Major Resistance

Largest Long Position for Gold Trend Followers Since November 2012

USD/MXN – Big Support Test Coming Up

USD/CAD Technical Analysis: All Eyes on 1.2835

Get our top trading opportunities of 2016 HERE

--- Written by David Song, Currency Analyst

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

To be added to David's e-mail distribution list, please follow this link.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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