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USD/CAD to Face Near-Term Pullback on Upbeat Canada Employment Report

USD/CAD to Face Near-Term Pullback on Upbeat Canada Employment Report

2016-04-08 08:00:00
David Song, Currency Strategist
Share:

- Canada Employment to Increase for First Time in 2016.

- Jobless Rate to Hold Steady at Annualized 7.3% for Second Month

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

Trading the News: Canada Net-Change in Employment

A 10.0K rebound in Canada Employment may spur a bullish reaction in the Canadian dollar and generate a near-term pullback in USD/CAD as it increases the Bank of Canada’s (BoC) scope to move away from its easing-cycle.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

A marked pickup in job growth may encourage BoC Governor Stephen Poloz to adopt an improved outlook for the region especially as Prime Minister Justin Trudeau implements fiscal support to further assist with the rebalancing of the real economy.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

Gross Domestic Product (YoY) (JAN)

1.1%

1.5%

Retail Sales (MoM) (JAN)

0.6%

2.1%

Existing Home Sales (MoM) (FEB)

--

0.8%

The pickup in private-sector consumption accompanied by signs of a stronger-than-expected recovery may lead to a significant expansion in employment, and a positive development may boost the appeal of the Canadian dollar as market participants scale back bets for a BoC rate-cut.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Ivey Purchasing Manager Index s.a. (MAR)

54.8

50.1

International Merchandise Trade (FEB)

-0.90B

-1.91B

Business Outlook Future Sales (1Q)

--

16.00

However, the slowdown in global trade may prompt Canadian firms to scale back on hiring, and a dismal print may produce near-term headwinds for the loonie as it fuels market speculation for additional monetary support.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Canada Employment Expands 10.0K or Greater

  • 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: Labor Report Falls Short of 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 the opposite direction.

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using FXCM Marketscope 2.0

  • Even though USD/CAD largely preserves the downward trend from earlier this year, the bullish divergence in the Relative Strength Index (RSI) may highlight an exhaustion in the near-term trend following the string of failed attempts to close below 1.2930 (61.8% expansion) to 1.2980 (61.8% retracement).
  • 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 theshort-term technical levels that matter for USD/CAD 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 Net-Change in Employment 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

03/11/2016

12:30 GMT

10.0K

-2.3K

-5

-40

February 2016 Canada Net-Change in Employment

USD/CAD Chart

Canada unexpectedly shed 2.3K jobs in February, with the jobless rate advanced to an annualized 7.3% from 7.2% the month prior even as the Participation Rate held steady at 65.9% for the third consecutive-month. A deeper look at the report showed a 51.8K decline in full-time positions, which was partly offset by a 49.5K rise in part-time employment. The weaker-than-expected data prints may encourage the Bank of Canada (BoC) to further assist with the rebalancing of the real economy, but Governor Stephen Poloz may largely endorse a wait-and-see approach throughout 2016 as the new government pushes through a fiscal stimulus package. Nevertheless, the market reaction was short-lived, with USD/CAD slipping back below the 1.3300 handle to end the day at 1.3215.

Read More:

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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.

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