USD/CAD: Trading the Canadian Dec 2011

The Canadian employment change is an important leading indicator which is often a market-mover. Traders should thus pay close attention to this indicator as well as the unemployment rate indicator, which are released simultaneously. A reading which is higher than the market forecast is bullish for the loonie.

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

Published on Friday at 12:00 GMT.

Indicator Background

Job creation is one of the most important leading indicators of overall economic activity. Canada’s unemployment rate has been holding steady in recent months, hovering at around 7.3%. Although considerably lower than the unemployment rate of its southern neighbor, it is nonetheless high and impeding economic growth.

The employment change index has shown great volatility in 2011, and the market has had a frustrating time trying to get its forecasts right, as these have usually been well above or below the actual figures. The November reading was no exception, with a horrendous reading of -54.0, after a prediction of 16.3K. The forecast for December  stands at  18.1K. Will the markets have better luck with the forecast this month?

Sentiment and Levels

There have been some signs of growth in the Canadian economy, such as in core sales and the retail sector. However, falling oil prices and the debt crisis in Europe have taken their toll on the Canadian dollar. So, the overall sentiment is bullish on USD/CAD towards this release.

Technical levels from top to bottom: 1.0440, 1.0360, 1.0263, 1.02, 1.1043, 1.0060, and 1.00.

5 Scenarios

1. Within expectations: 14K to 22K: In this scenario, USD/CAD could show some slight movement, but it is likely to remain within range, not breaking any levels.
2. Above expectations: 22.1K to 26K: A reading above expectations would be a welcome sign of economic growth, and could send the pair below one support level.
3. Well above expectations: Above 26K: A sharp rise in employment figures could trigger a rally, and two levels of support can be broken.
4. Below expectations: 8K to 13.9K: A reading lower than expected could push the USD/CAD upward, with one resistance level at risk.
5. Well below expectations: Below 8K: A poor reading will shake investor confidence and the USD/CAD could break two or more resistance levels.

For more on the loonie, see the USD/CAD forecast.