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USD/CAD Rebound Vulnerable to Strong Canada Employment Report

USD/CAD Rebound Vulnerable to Strong Canada Employment Report

2016-06-10 08:00:00
David Song, Strategist
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- Canada Employment to Increase for Second Time in 2016.

- Jobless Rate to Climb to Annualized 7.2%- Highest Reading Since February.

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Trading the News: Canada Net-Change in Employment

Despite forecasts for an uptick in the jobless rate, a 1.8K rebound in Canada Employment may heighten the appeal of the loonie and spur a near-term decline in USD/CAD as the data highlights an improved outlook for growth and inflation.

What’s Expected:

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Why Is This Event Important:

Even though the Bank of Canada (BoC) retains a cautious outlook for the real economy, Governor Stephen Poloz and Co. may stick to the sidelines throughout 2016 and show a greater willingness to gradually move away from its easing cycle especially as Prime Minister Justin Trudeau implements fiscal support to encourage a stronger recovery.

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

New Housing Price Index (YoY) (APR)

2.1%

2.1%

Labor Productivity (QoQ) (1Q)

0.4%

0.4%

Existing Home Sales (MoM) (APR)

--

3.1%

The ongoing expansion in the housing market accompanied by signs of growing business outputs may generate a meaningful rebound in job growth, and a positive employment report may spur a bullish reaction in the Canadian dollar as market participants scale back bets for a BoC rate-cut.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

International Merchandise Trade (APR)

-2.55B

-2.94B

Gross Domestic Product (Annualized) (1Q)

2.8%

2.4%

Retail Sales (MoM) (MAR)

-0.6%

-1.0%

Nevertheless, waning demand from home and abroad may drag on hiring, and another unexpected contraction in Canadian employment may drag on the loonie as it renews speculation for additional monetary support.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Job Growth & Unemployment Rate Beat Market Expectations

  • 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: Canada Employment Report Disappoints

  • 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
  • USD/CAD may face a near-term recovery as it comes up against channel support, with the Fibonacci overlap around 1.2620 (78.6% retracement) to 1.2650 (50% retracement) offering soft support, but the bearish formation may continue to take shape over the days ahead especially as the Relative Strength Index (RSI) preserves the downward trend carried over from earlier this year.
  • Key Resistance: 1.3560 (100% expansion) to 1.3630 (38.2% retracement)
  • Key Support: 1.2510 (78.6% retracement) to 1.2520 (38.2% expansion)

Check out the short-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 Employment report 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)

APR

2016

05/06/2016

12:30 GMT

1.0K

-2.1K

+68

+55

April 2016 Canada Net-Change Employment

USD/CAD Chart

The Canadian economy unexpectedly shed 2.1K jobs in April following the 40.6K expansion the month prior, while the jobless rate held steady at an annualized 7.1% as the Participation Rate narrowed to 65.8% form 65.9%. A deeper look at the report showed a 2.4K contraction in full-time employment, while part-time positions increased another 0.4K following the 5.3K rise in March. Indeed, the recent weakness in the labor market may encourage the Bank of Canada (BoC) to retain a cautious outlook for the real economy, but we may see Governor Stephen Poloz and Co. gradually move away from its easing cycle following the ‘insurance’ rate-cuts in 2015. The Canadian dollar lost ground following the weaker-than-expected employment figures, with USD/CAD climbing above the 1.2900 handle to end the day at 1.2905.

Get our top trading opportunities of 2016 HERE

Read More:

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EUR/USD Long Term Bull Trend Holding Support

--- Written by David Song, Currency Analyst

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

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