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Rosy Canada Employment Report to Curb USD/CAD Rebound

Rosy Canada Employment Report to Curb USD/CAD Rebound

2016-09-09 08:00:00
David Song, Strategist
Share:

- Canada Employment to Increase for First Time Since May.

- Jobless Rate to Uptick for Second Consecutive Month.

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Trading the News: Canada Net-Change in Employment

A 14.0K rebound in Canada Employment may derail the near-term rebound in USD/CAD as it highlights an improved outlook for the region and raises the Bank of Canada’s (BoC) scope to retain the current policy throughout the remainder of the year.

What’s Expected:

DailyFX Calendar

Click Here for the DailyFX Calendar

Why Is This Event Important:

Even though the BoC warns ‘risks to the profile for inflation have tilted somewhat to the downside since July,’ a marked rebound in job growth may encourage Governor Stephen Poloz to preserve a wait-and-see approach for monetary policy as the central bank anticipates the economy to ‘strengthen gradually in the second half of this year.’ However, another dismal employment report may push the BoC to adopt a more dovish tone at the next policy meeting on October 19 as officials warn ‘the ground lost over previous months raises the possibility that the profile for economic activity will be somewhat lower than anticipated in July.’

Expectations: Bullish Argument/Scenario

Release

Expected

Actual

International Merchandise Trade (JUL)

-3.30B

-2.49B

CFIB Business Barometer (AUG)

--

59.8

Housing Starts (JUL)

191.0K

198.4K

The improvement in the terms of trade paired with the uptick in business confidence may foster a strong job growth report, and a positive development may trigger a bullish reaction in the Canadian dollar as it boosts the outlook for growth and inflation.

Risk: Bearish Argument/Scenario

Release

Expected

Actual

Ivey Purchasing Manager Index (AUG)

56.5

52.3

Gross Domestic Product (Annualized) (2Q)

-1.5%

-1.6%

Retail Sales (MoM) (JUN)

0.5%

-0.1%

However, the larger-than-expected contraction during the second-quarter paired with the slowdown in private-sector consumption may drag on employment, and another unexpected decline in job growth may spur a larger recovery in USD/CAD as it drags on interest-rate expectations.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Job Growth Rebounds 14.0K or Greater in August

  • Need to see red, five-minute candle following the release to consider a short 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 Again

  • Need green, five-minute candle to favor a long USD/CAD position.
  • 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
  • USD/CAD may work its way back towards the top of its recent range following the Bank of Canada interest-rate decision as the pair fails to test the August low (1.2763) and carves a near-term series of higher highs & lows; break/close above the Fibonacci overlap around 1.2930 (61.8% expansion) to 1.2990 (23.6% retracement) may spur a run at the monthly high (1.3082).
  • 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 rate decision!

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

Impact that the 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)

JUL

2016

08/05/2016

12:30 GMT

10.0K

-31.2K

+161

+146

July 2016 Canada Net Change in Employment

USD/CAD 5-Minute

USD/CAD Chart

The Canadian economy unexpectedly shed another 31.2K jobs in July following the 0.7K contraction the month prior, while the jobless rate climbed to an annualized 6.9% from 6.8% during the same period to mark the first uptick since February. A deeper look at the report showed the decline was led by a 71.4K drop in full-time positions, with the labor participation rate narrowing to 65.4% from 65.5%, while part-time employment climbed another 40.2K after rising 39.4K in June. The Canadian dollar sold-off following the dismal report, with USD/CAD climbing above the 1.3100 handle to end the day at 1.3164.

Get our top trading opportunities of 2016 HERE

Read More:

S&P 500: Unofficial End of Summer is Here, Price Movement Set to Pick Up

COT-Capitulation Low is Possible for Copper

Timing the Crude Oil Low

Technical Focus: Big Test in USD/ZAR

--- 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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