USD/CAD: Trading the Canadian Sep 2011

The Canadian employment change is an important leading indicator which tends to have a significant impact on the markets. Traders always take a close look at employment figures, and the employment change  numbers could affect USD/CAD.

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

Published on  Friday at 11:00 GMT.

Indicator Background

Job creation is one of the most important leading indicators of overall economic activity. Canada’s unemployment rate stands at 7.2%, with virtually no change expected  in the September release.  Although considerably lower than the unemployment rate in the US, it is nonetheless high and continues to  impede economic growth.

The employment change index dropped sharply from +28.4K in July to an anemic +7.1K in August, well below the forecast of +17.7. The forecast for September is a gain of +23.4K. If the actual figure falls below the September forecast, traders may get nervous about the Canadian dollar and the result could be a downward spin for the loonie.

Sentiment and Levels

There have been some signs of growth in the Canadian economy, such as in purchasing activity. However, the US is Canada’s largest trading partner, and  as analysts  are fond of saying, when the US sneezes, Canada catches a cold. Thus, a sluggish US economy always takes  a toll on its northern neighbor.  Also, falling commodity prices, particularly oil, have hurt exports and may well push the Canadian dollar downwards. So, the overall sentiment is bullish on USD/CAD towards this release.

Technical levels from top to bottom: 1.0060, 1, 0.9913, 0.9850, 0.98, 0.9750, 0.9667 and 0.96.

5 Scenarios

1. Within expectations: +18K to +29K: In this scenario, USD/CAD could show some slight fluctuation, but it is likely to remain within range,  without breaking any levels.
2. Above expectations: +30K to +38K: A reading above expectations would be an indication  of growth in the Canadian economy,  and could  push the pair  below one  support level.
3. Well above expectations: Above +38K: A sharp rise in employment  numbers could propel the pair downwards, and two levels of support  can be broken.
4. Below expectations: +7K to +17K: A lower than expected reading could push USD/CAD upwards, with one resistance level at risk.
5. Well below expectations: Below +7K: Another poor performance will hurt confidence in the loonie, and the  pair could break two  resistance levels.

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