USD/CAD: Trading the Canadian Ivey PMI Index Dec 2011

The Canadian Ivey PMI (Purchasing Managers’ Index) is an important leading indicator which focuses on the services sector. As the PMI comes out at the beginning of each month, analysts and traders look closely at the index readings for any hint of a market trend. A reading which is higher than the market forecast is bullish for the Canadian dollar.

Here are all the details and 5 possible outcome for USD/CAD.

Published on Tuesday at 15:00 GMT.

Indicator Background

The PMI is based on a comprehensive survey of purchasing managers in the service sector, who are surveyed about business conditions and their expectations as to how the economy will perform. A index reading above 50 indicates economic growth, while a figure below 50 signifies economic contraction.

The index has had three consecutive readings over 50, which points to modest industrial expansion. The November reading was 54.4, and the forecast for December is up slightly to 55.2.

Sentiment and technical levels

GDP weakened in November to just 0.2%, and employment figures were much worse than forecast. On a positive note, oil prices are up, which is bullish for the loonie. Thus, the overall sentiment is neutral on USD/CAD prior to this release.

Technical levels, from top to bottom: 1.0360, 1.03, 1.0263, 1.02, 1.0143, 1.0070, 1.00, 0.99 and 0.9830.

5 Scenarios

1. Within expectations: 53.0 to 57.0: In this case, USD/CAD may fluctuate slightly within range, with a small chance of breaking higher.
2. Above expectations: 57.1 to 59.5: An unexpected higher reading can send the pair below one support level.
3. Well above expectations: Above 59.5: The chances of such an outcome are low. Such a scenario would push USD/CAD downwards, and a second support level might be broken as a result.
4. Below expectations: 50.5 to 52.9: A smaller than forecast gain would create pressure on the loonie and one resistance line could be broken.
5. Well below expectations: Below 50.5 points: A reading close to or below the critical 50 level cannot be ruled out in the current economic climate. In this case, USD/CAD could break two or more resistance lines.

For more about the Canadian dollar, see the USD/CAD forecast.