While all eyes are on Mr. Euro and the ECB rate cut, I’d like to turn my cheek to the other way and avoid the chaos for now. It is worthy to mention though that the Invest Diva students who set their EUR/USD bearish target a little above 1.05 as we covered in our lessons, earned their pips and moved on before Mr.Euro jumped this morning. So congrats!
Now that the ECB has cut rates, we have to see what we could expect from the US Fed. Also, on Friday we have top tier economic data coming out from the US and Canada, which could finally give a direction to the USD/CAD pair. Here are the details.
1- Canada’s economy is out of recession – but GDP fell on monthly basis
With oil prices bottoming out, Canada’s economy was looking sad and gloomy just a few months ago. But on Tuesday we found out that their gross domestic product (GDP) grew by 2.3 per cent between July and September, on an annualized basis, after two consecutive quarterly declines. This was still lower than the expected growth of 2.4%, but better than previous quarter’s -0.3%. The rebound was helped in part by a surprisingly big jump in exports — offsetting still-weak business investment.
The quarterly growth should have been great news for Ms. Loonie, but she didn’t move much on the forex dance floor because on a monthly basis, GDP fell 0.5% in September, marking the biggest monthly decline since March 2009. There are still troubling signs ahead as the energy sector continues to pull down overall output.
2- Canada’s jobs report out on Friday at 2:30 PM GMT
Canada’s employment report and trade balance for November is up for release on December 4 (Fri) 2:30 pm GMT and is expected to show a 0.7K drop in employment, enough to keep the unemployment rate unchanged at 7.0%.
With the Canadian federal elections already over, analysts predict that there wouldn’t be much part-time jobs added during the previous month. Full-time hiring trends haven’t been so upbeat in the past few months, which is probably why a negative figure is expected this time. To top it off, further layoffs in oil-related companies might have still weighed on jobs growth.
3- Fed rate hike complicated now that ECB cut interest rates
Fed head Janet Yellen signaled Wednesday that she is ready to raise the benchmark short-term interest rate as the labor market gets stronger. She signaled the same thing on Thursday, saying she “currently judges that U.S. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market,” and that “Ongoing gains in the labor market, coupled with my judgement that longer-term inflation expectations remain reasonably well anchored, serve to bolster my confidence in a return of inflation to 2 percent.”
However, we need to take her testimony with a grain of salt, with the European Central Bank (ECB) rate cut on Thursday. The ECB cut interest rates by 10 basis points to minus 0.3% and extended its massive bond-buying program as it attempts to inject life into the eurozone’s creaking economy.
What the ECB does impacts Wall Street, as the more stimulus the ECB delivers, the greater the odds the U.S. dollar will strengthen vs. the euro and other currencies, a shift that will crimp sales and profits of U.S. multinationals.The ECB’s stimulus plans, therefore, could complicate the Fed’s rate-hike timetable, as higher U.S. rates relative to rates around the globe hurt U.S. competitiveness.
4- U.S. Jobless Claims and NFP reports out on Friday at 2:30 PM GMT
Further complicating a Fed rate hike decision could be Friday’s Non-Farm Payrolls (NFP) report. The NFP report is inherently important because it gauges the overall health of the U.S. labor market. And with the Fed basing the many points on this factor on their rate hike decision, a negative NFP could push the US dollar lower against her forex dancing partners, including Ms. Loonie.
For November’s employment situation, forex traders are expecting non-farm payrolls to increase by 200K, which is a bit lower than the previous 271K increase and the 12-month average of 239K. The unemployment rate, meanwhile, is expected to hold steady at 5.0%. As for the average hourly earnings, it’s expected to increase by 0.2%, which is a slower increase when compared to the previous month’s 0.4%, but an increase is always good news.
Keep in mind that the important Canadian/ American economic data are all coming out at 2:30 PM on Friday, so depending on the outcome, the USD/CAD pair could be in for a wild dance.
5- USD/CAD Bullish on Monthly and Daily Charts
The USD/CAD pair broke above an important neckline and pivot level of a double bottom chart pattern on the monthly chart back in September, and has been consolidating ever since. It is currently testing the 61% Fibonacci retracement level in the 1.3450 area. With this, we could expect the pair to compete the double bottom pattern in the long run, reaching the highs of 2004 at 1.3650 and maybe even more.
Zooming in to the daily chart,we realize that the USD/CAD pair broke above the Ichimoku cloud beginning of November and is now slowly moving towards the resistance level of 1.3450.
With the technicals pointing to further gains, we need to add the fundamentals to our Diamond Analysis bowl, which gives us a number of scenarios coming up.
Bullish Scenario: Worse than expected Canadian jobs report and better than expected NFP combo. This could create an ideal bullish strategy as we would be able to pair a strong currency (USD) versus a weak one (CAD). First bullish target would be 1.3450 and a break above it could extend the gains towards 1.3650.
Bearish Scenario: Better than expected Canadian jobs report and worse than expected NFP combo + failure to break above the resistance level at 1.3450. A worse than expected NFP and US jobs report could lower the chances of a rate hike in December which could push the USD/CAD pair lower in the short term.
Ranging Scenario: A dual positive or negative from both the US and Canada would confuse the S*#! out of the USD/CAD pair and it would potentially continue its consolidation between 1.3450 and the pivot area between 1.309 and 1.28 70. The ranging scenario is the second likely one, because many analysts believe that a US rate hike is already priced in the USD.
Here are the recommended supports and resistance levels* for short term forex trading strategies:
In any case, set your stop loss and profit targets a little loose from the below levels, because the naughty currency pairs sometimes change their mind right before a psychological level just to piss the forex trading crowd off. This technique helps you avoid getting kicked out of your trading position prematurely.
*Important Note: The support and resistance levels are not suitable for all traders and largely depend on your account size, margin and leverage. Book a private lesson to learn how to personalize your account based on our trading guide.