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USD/CAD to Stage Larger Recovery on Feeble Canada Employment Report

USD/CAD to Stage Larger Recovery on Feeble Canada Employment Report

David Song, Strategist

- Canada Employment to Contract for First Time Since November.

- Jobless Rate to Hold Steady at Annualized 6.9%, Participation Rate at 65.8%.

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

Trading the News: Canada Net Change in Employment

A 5.0K contraction in Canada Employment may generate a larger recovery in the USD/CAD exchange rate as it puts pressure on the Bank of Canada (BoC) to further support the real economy.

What’s Expected:

DailyFX Calendar

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Why Is This Event Important:

After keeping the benchmark interest rate unchanged throughout 2016, it seems as though Governor Stephen Poloz and Co. are gradually moving away from the easing-cycle as the Canadian economy is anticipated to reach ‘full capacity around mid-2018, in line with October’s projection.’ Even though employment is projected to slow in January, the figures have beat market forecasts for the last five consecutive month, with another unexpected rise in job growth likely to produce a bullish reaction in the Canadian dollar. However, signs of a weakening labor market may force the BoC to adopt a dovish outlook for monetary policy especially as the central bank warns ‘inflation in Canada has been lower than anticipated.’

Expectations: Bearish Argument/Scenario

Release

Expected

Actual

Raw Materials Price Index (MoM) (DEC)

2.8%

6.5%

Wholesale Trade Sales (MoM) (NOV)

0.5%

0.2%

Retail Sales (MoM) (NOV)

0.5%

0.2%

Rising inputs costs accompanied by the slowdown in household spending may push Canadian firms to scale back on hiring, and a dismal development may weigh on the loonie as it dampens the outlook for growth and inflation.

Risk: Bullish Argument/Scenario

Release

Expected

Actual

Housing Starts (JAN)

197.3K

207.4K

International Merchandise Trade (SEP)

0.20B

0.92B

Gross Domestic Product (YoY) (NOV)

1.4%

1.6%

Nevertheless, the recent pickup in global trade paired with the ongoing expansion in the housing market may support another positive print, and a unexpected rise in employment may undermine the near-term recover in USD/CAD as it encourages the BoC to slowly remove the highlight accommodative policy stance.

For More Updates, Join DailyFX Currency Analyst David Song for LIVE Analysis!

How To Trade This Event Risk(Video)

Bearish CAD Trade: Canada Employment Contracts 5.0K or Greater

  • Need to see green, five-minute candle following the report to consider a long trade on USD/CAD.
  • If market reaction favors a short loonie trade, buy USD/CAD with two separate position.
  • Set stop at the near-by swing low/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.

Bullish CAD Trade: Job Growth Continues to Beat Market Expectations

  • Need red, five-minute candle to favor a short USD/CAD trade.
  • Implement same setup as the bearish Canadian dollar trade, just in the opposite direction.

Potential Price Targets For The Release

USD/CAD Daily

USD/CAD Daily Chart

Chart - Created Using Trading View

  • The series of failed attempts to close below the Fibonacci overlap around 1.2980 (61.8% retracement) to 1.3020 (50% expansion) accompanied by the topside break in the Relative Strength Index (RSI) keeps the broader bias tilted to the topside especially as the pair continues to operate within the upward trending channel carried over from the previous year.
  • Interim Resistance: 1.3630 (38.2% retracement) to 1.3660 (78.6% expansion)
  • Interim Support: 1.2980 (61.8% retracement) to 1.3020 (50% expansion)

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

Impact that Canada’s 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)

DEC

2016

01/06/2017

13:30 GMT

-2.5K

52.7K

-36

-11

December 2016 Canada Net Change in Employment

USD/CAD 5-Minute

USD/CAD Chart

The Canadian economy unexpectedly added 53.7K jobs in December, with the gain driven by an 81.K expansion in full-time positions. A deeper look at the report showed part-time employment narrowed 27.6K during the same period, while the jobless rate climbed to an annualized 6.9% from 6.8% in November which was accompanied by an unexpected uptick in the labor force participation rate. The Canadian dollar gained ground against its U.S. counterpart following the better-than-expected employment report, but the move below the 1.3200 handle was short-lived, with the pair ending the day at 1.3237.

If you’re looking for trading ideas, check out our Trading Guides.

Read More:

DailyFX Roundtable: Key Trade Setups & Themes Ahead of RBA & RBNZ

S&P 500: Break to New Highs Near, Longs Preferred on Dips

Technical Weekly: EUR/USD Outside Week Follows Narrow Range Week

Gold Prices Vulnerable into February Open- Outlook Constructive Above 1200

--- 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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