USD/CAD: Trading the Canadian Ivey PMI Index Feb 2012

The Canadian Ivey PMI (Purchasing Managers’ Index) is an important leading indicator, based on a survey of purchasing managers from a range of sectors in the economy.  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 Monday at 15:00 GMT.

Indicator Background

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

The index has been rising steadily for the past two months, and recorded a reading of 63.5 in January. This was  its highest reading since June 2011, and was well above the market forecast of 57.5. The  markets are  predicting that the index will drop  to  57.8 this month.  Will the index again surprise the markets with a strong reading?

Sentiment and technical levels

A stronger  US economy means a greater appepetite for imports, which is good news  for  both the  Canadian economy and the looney. As well, tension with Iran could lead to another spike in oil prices, which would help push up the Canadian dollar.  So, the overall sentiment is  bearish on USD/CAD prior to this release.

Technical levels, from top to bottom: 1.0143, 1.0070, 1.00, 0.99, 0.9830, 0.9780  and 0.9736.

5 Scenarios

1. Within expectations: 59.5 to 67.5: In this case, USD/CAD may fluctuate slightly within range, with a small chance of breaking higher.
2. Above expectations:  67.6 to 72.0: An unexpected higher reading can send the pair below one support level.
3. Well above expectations: Above 72.0: 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: 55.0 to 59.4: A smaller than forecast gain would create pressure on the loonie and one resistance line could be broken.
5. Well below expectations: Below 55.0 points: A very poor reading cannot be ruled out. In this case, USD/CAD could break two or more resistance lines.

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