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USD/CAD Range Vulnerable to Strong Canada Employment Report

USD/CAD Range Vulnerable to Strong Canada Employment Report

David Song, Strategist

- Canada Employment to Increase for Sixth Consecutive Month.

- Jobless Rate to Pick Up From 6.5%- Lowest Since 2008.

Trading the News: Canada Net Change in Employment

Canada Employment

Another 15.0K rise in Canada Employment may undermine the recent rebound in USD/CAD as the ongoing improvement in the labor market puts pressure on the Bank of Canada (BoC) to lift the benchmark interest rate off of the record-low.

Why Is This Event Important:

Even though the BoC largely endorses a wait-and-see approach for monetary policy, signs of stronger growth may push the central bank to adopt an improved outlook for the region as officials note the ‘Canadian economy’s adjustment to lower oil prices is largely complete and recent economic data have been encouraging.’ With that said, Governor Stephen Poloz and Co. may continue to change their tune over the coming months, and the BoC may show a greater willingness to gradually normalize monetary policy over the medium-term as ‘inflation is broadly in line with the Bank’s projection in its April Monetary Policy Report (MPR).

Have a question about the currency markets? Join a Trading Q&A webinar and ask it live!

Impact that the Canada Employment report has had on USD/CAD during the lastrelease

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

APR

2017

05/05/2017 12:30 GMT

10.0K

3.2K

-5

-115

April 2017 Canada Net Change in Employment

USD/CAD 5-Minute

USD/CAD Chart

The Canadian economy added another 3.2K jobs in April following a 19.4K expansion the month prior, while the jobless rate unexpectedly narrowed to an annualized 6.5% from 6.7% during the same period as the Labor Force Participation Rate slipped to 65.6% from 65.9% in March. A deeper look at the report showed the gain was led by a 34.3K rise in part-time employment, while full-time positions decline 31.2K after posting a 18.4K rise during the previous month. Despite the limited market reaction, the Canadian dollar gained ground following the report, with USD/CAD pushing below the 1.3700 handle to end the day at 1.3647.

How To Trade This Event Risk(Video)

Bullish CAD Trade: Canada Adds 15.0K or More Jobs

  • Need a red, five-minute candle following the report to favor a short USD/CAD trade.
  • If market reaction favors a bullish loonie trade, sell USD/CAD with two separate lots.
  • Set stop at the near-by swing high/reasonable distance from entry; look for at least 1:1 risk-to-reward.
  • Move stop to breakeven on remaining position once initial target is met, set reasonable limit.

Bearish CAD Trade: Employment Report Falls Short of Market Expectations

  • Need a green, five-minute USD/CAD candle to consider a short loonie trade.
  • Implement the same setup as the bullish loonie 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 lack of momentum to test the May-low (1.3388) may continue to foster range-bound prices in USD/CAD as the pair remains capped by the Fibonacci overlap around 1.3560 (50% expansion) to 1.3570 (61.8% expansion).
  • Nevertheless, the broader outlook remains constructive as both price & the Relative Strength Index (RSI) retain the bullish formations carried over from 2016; keeping a close eye on the momentum indicator as it appears to be breaking out of the downward trend carried over from the previous month.
  • Interim Resistance: 1.3790 (100% expansion) to 1.3840 (61.8% retracement)
  • Interim Support: 1.3280 (50% retracement) to 1.3310 (38.2% retracement)

Make Sure to Check Out the DailyFX Guides for Additional Trading Ideas!

IG Sentiment

Retail trader data shows 56.5% of traders are net-long USD/CAD with the ratio of traders long to short at 1.3 to 1. The number of traders net-long is 0.8% higher than yesterday and 6.1% lower from last week, while the number of traders net-short is 17.5% lower than yesterday and 0.3% higher from last week. For more information on retail sentiment, check out the new gauge developed by DailyFX based on trader positioning.

--- 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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