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The Canadian dollar enjoyed an excellent jobs report and resumed its gains against the retreating greenback. Will USD/CAD challenge the year’s lows? Trade Balance is the main event this week. Here is an outlook on the major market-movers and an updated technical analysis for USD/CAD.

Last week, Canada’s economy added 52.1K  jobs in September, but unemployment rate edged up to 7.4% from 7.3% in the previous month. However the Job gain reading was well above the 11.4K predicted indicating the Canadian job market is stable. Will this trend continue?  Let’s start.

Updates: Housing Starts declined slightly in September, falling to 220 thousand. However, the indicator easily beat the market forecast of 207K. USD/CAD is steady, as the pair was trading at 0.9751. The IMF  downgraded  its  forecast for the Canadian  economy in a quarterly report. In  its World Economic  Outlook,  the IMF  forecast  that  Canada’s economy  would  rise  1.9% in 2012 and 2% next year. That is  lower than  an earlier IMF forecast of 2.1% and 2.2%, respectively. The loonie has edged higher, as CAD/USD was trading at 0.9772.

USD/CAD daily chart with support and resistance lines on it. Click to enlarge:  USD/CAD Technical Analysis October 8 12 2012

  1. Housing Starts: Tuesday, 12:15. Canadian housing starts edged up unexpectedly in August to a adjusted annualized rate of housing starts was 224,900 units up from 208,000 in July amid a few large multi-unit projects in Toronto. This elevated reading indicates the Canadian housing market is thriving, but a certain slowdown is expected in the remainder of 2012 and 2013 due to changes to mortgage insurance rules which will limit demand for new houses. A gain of 201,000 is expected this time.
  2. Trade Balance: Thursday, 12:30. Trade balance deficit grew to a record high of $2.3 billion in July, following $1.9 billion deficit in June, amid a 3.4% plunge in exports. Economists expected a lower figure of $1.4 billion.U.S. weakness badly reflects on Canadian exports being its dominant trading partner. This is a worrisome piece of news since Canadian economy is largely dependent on exports. A lower deficit of $1.7 billion is anticipated.
  3. NHPI: Thursday, 12:30. Canada’s New Housing Price Index (NHPI) rose 0.1% in July following a 0.2% increase in June. The main price increase occurred in the metropolitan region of Calgary. On a yearly base NHPI rose 2.3% in July following the same increase in the preceding month. Another rise of 0.2% is forecasted.

* All times are GMT.

USD/CAD Technical Analysis

USD/C$ battled with the pivotal 0.9820 line and later got closer to the 0.99 line (mentioned last week). The pair later changed course and dropped sharply. After attempts to recapture 0.9820 were unsuccessful, $/CAD fell to support at 0.9725 before rebounding.

Technical lines, from top to bottom:

1.0066 was key support before parity. It’s strength during July 2012 was clearly seen and it gave a fight before surrendering. Now, it is somewhat weaker. 1.0030 is another line of defense before parity after capping the pair earlier in the year. The move below this line is not confirmed yet.

The very round number of USD/CAD parity is a clear line of course, and the battle was very clear to see at the beginning of August 2012.  Under parity, 0.9950 is now the top border of the range, similar to a role it played in March 2012. It also worked well as resistance in August 2012, in more than one occasion.

0.99, the round number capped the pair in May 2012, was a pivotal line in the middle of the range during the summer of 2012. It is backed by 0.9880.

0.9817 was a stubborn peak in September and is now significant resistance.  Lower, 0.9725 worked as strong support back at the fall of 2011 and showed its strength once again in October 2012.

0.9667, which was another strong cushion in June 2011 is the next line.  The round number of 0.96 provided some support back in 2011 and is minor now.

Further below we find 0.9550, which worked as resistance when the pair traded in low ground. 0.9450 also provides some support on the way down.

The ultimate line of support is 0.9406, which was the bottom in 2011 and the lowest since the financial crisis broke out.

Downtrend Resistance

Since the middle of June, downtrend resistance caps the pair. The pair touched the line two times since then, including in October, thus making it significant resistance.

I am bearish on USD/CAD.

The excellent Canadian jobs report was certainly needed for the loonie, which capitalized on this. The gains show that the Canadian economy is doing well. This goes hand in hand with the hawkish tone of the BOC. In addition, the positive Non-Farm Payrolls report in the US is also helping the loonie – more US demand is necessary for Canada.

In addition, the loonie has shown resilience to a third consecutive week of drops in oil prices. It could even gain more when oil recovers.

Further reading: