USDCAD Shorts Recommended On Rising Risks In Canadian Economy – BOC Reports Awaited

The greenback climbed up sharply against major currencies as investors shrugged off concerns over the all-important U.S non-farm payrolls. The non-farm employment number, published last Friday, blew out all forecasts by a huge margin of more than 100,000 more jobs created than forecast.

Moreover, on Monday (11/7), the Fed’s labor market conditions index for June declined by 1.9 points, compared with a 3.6-point drop in May. The index has been stuck in negative territory for six consecutive months, the longest decline since the end of the recession in 2009. The index is used to measure the labor market’s momentum by combining 19 labor market indicators. Although the US labor market continued to slow in June, the declines have been moderating, as the economy moved closer to full employment. A stronger labor market has contributed to lifting the greenback aggressively.

Its not all rosy however. In other data reported yesterday, the market received disappointing statistics from the U.S Census Bureau. Wholesale inventories in May edged up marginally, by only 0.1%, compared to expectations of a 0.2% increase. The figure for April was a significant 0.7 % gain. The lower-than-expected reading indicated that inventory investment remained a drag on economic growth in the second quarter.

Over the last two days, the markets seem to be developing an appetite for risky assets in a vote of confidence for the “helicopter money” plans that are being expected after a meeting between U.S. Fed chair Ben Bernanke and Japanese leaders this week. This is in addition to stimulus measures being expected in Europe and the UK. The measures being expected involve central banks directly buying government bonds and other money market instruments, to pump more cash into the system. Hopes were dashed today, when Japan’s top government spokesperson ruled out the possibility of implementing “helicopter money”, which again weighed on the greenback. The dollar index .DXY plunged sharply to the level of 96.47.

In some warning signs for the future, a report from the Canadian Mortgage and Housing Corp on Monday (11/7) continued to ring alarm bells regarding the risk of a housing market bubble, which could destroy the country’s financial markets. The rate of housing starts rose to 218,333 in June from a revised 186,709 in May. The advance in Canadian housing starts was brought about by the booming apartment construction in Ontario as well as a strong performance from British Columbia.

The next focus for the market will be the publication of the BOC Quarterly Monetary Policy Report later in the session today.

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Fig. USDCAD H4 Technical Chart

USDCAD is back on track to fall further after a brief corrective bounce yesterday. On the H4 chart, RSI (14) has edged down past 50, suggesting that the bearish trend is becoming stronger. Parabolic SAR continues to signal a downtrend with the parabolics band still above the current price. The price is anticipated to dip further. However, the 23.6% Fibonacci retracement is acting as a strong support so this bar can be a turning point for to take profits on a sell order.

Trade suggestion

Sell stop at 1.30240, Take profit at 1.29860, Stop loss at 1.30480.

 

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