USD/CAD Intra-Day Technical Analysis - bullish reversal

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Sergey Golubev, 2015.08.02 08:34

Forex Weekly Outlook August 3-7 (based on forexcrunch article)

US ISM Manufacturing PMI, Trade Balance, ISM Non-Manufacturing PMI, Rate decision in Japan, Employment data from New Zealand, Canada and the US, including the all-important NFP report. Join us as we explore this week’s market movers.

Last week the FOMC issued its rate statement reaffirming that the US economy continues to strengthen, leaving the door open for a possible interest rate hike in September. Policymakers noted the economy has rebounded from the slowdown, despite a downturn in the energy sector. The Fed also stated that the employment market saw solid gains in recent months, suggesting continued jobs growth. The Fed maintained its rates unchanged and noted the labor market needs to advance “some” more and inflation has to rise towards the 2% medium-term target, before the Fed decides to raise rates. Will we see a rate hike in September?

1. US ISM Manufacturing PMI: Monday, 14:00. Manufacturing activity in the U.S. advanced more than expected in June, reaching 53.5 compared to 52.8 posted in May. The positive reading was in line with the Fed’s plans to raise interest rate this year. The new orders index edged up to 56.0, from 55.8 in the prior month, while the employment index rose to 55.5 from 51.7 in May, showing stronger employment levels. Analysts expect PMI to reach 53.6 this time.
2. Australian rate decision: Tuesday, 4:30. Australia’s central bank left interest rates at a record low of 2% in July reflecting stability in  monetary policy. The Central Bank stated that a lower currency was needed to help achieve balanced growth. Subdued spending as well as strong currency prevent achieving balanced growth. Furthermore the recent volatility in Chinese equity markets, could badly effect Australia’s economic outlook. No change in rates is expected now.
3. NZ employment data: Tuesday. 22:45. The Reserve Bank of New Zealand cut rates in July amid gloomy economic data. Inflation softened more than expected and the unemployment remained stubbornly high at 5.8%. Job growth also moderated, rising 0.7% in the first quarter adding 16,000 positions compared to 1.2% expansion in the last quarter of 2014. New Zealand employment market is expected to grow by 0.5%, while the Unemployment rate is expected to rise to 5.9%.
4. US ADP Non-Farm Employment Change: Wednesday, 12:15. U.S. private sector employment expanded at the fastest rate in six months with a 237,000 jobs addition in June. The strong employment market together with other promising economic data such as the rise in the housing sector, the improvement in consumer spending and the pick up in factory activity, show the US economy is back to solid growth, backing views that a rate hike is on the way. US jobs market is expected to add ,000 positions in July.
5. US Trade Balance: Wednesday, 12:30. The U.S. trade deficit widened in May amid weaker exports, reaching $41.9 billion from the $40.7 billion registered in the previous month. Economists expected a bigger deficit of $42.5 billion. Exports declined 0.8% due to lower demand for commercial aircraft and industrial equipment. However strong domestic demand increased imports mainly in automobiles. U.S. trade deficit is expected to grow further to 42.2 billion.
6. US ISM Non-Manufacturing PMI: Wednesday, 12:30. ISM’s non-manufacturing report showed a solid gain in June, the composite index rose to 56.0 from 55.7 in May. New orders advanced to 58.3 compared to 57.9 in May. Export orders moderated but still remained over 50 at 52.0. Business activity edged up 2 points to 61.5, but employment slowed to 52.7 from 55 in May. Despite the positive rise, the PMI services index shows lack of growth at the end of the second quarter.
7. Australian employment data: Thursday, 1:30. Australia’s unemployment rate remained at 6% in June, while the economy added 7,300 jobs. Economists expected the unemployment rate to rise to 6.1% and forecasted a 2,100 jobs contraction. The participation rate, which refers to the number of people either employed or are actively looking for work, remained steady at 64.8%. However, despite the positive readings, policymakers are concerned about the persistent rise in the unemployment rate following the crush of the mining sector. Australia’s economy is expected to gain10,100 jobs, while the unemployment rate is expected to rise to 6.1%.
8. UK rate decision: Thursday, 11:00. The Bank of England kept rates on hold for more than six years and is not expecting to raise them until next year. Economists see no reason to hike rates since inflation pressures are near record lows. However, Governor Mark Carney noted that inflation was expected to pick up markedly towards the end of the year. The Bank also left its monetary stimulus program, at £375 billion. The Bank of England is not expected to change rates this time.
9. US Unemployment Claims: Thursday, 12:30. The number new claims for unemployment benefits increased less than expected last week, reaffirms that the US labor market continues to strengthen. The number of jobless claims rose by 12,000 to a seasonally adjusted 267,000. Analysts expected initial claims to reach 268,000. Meanwhile the four-week moving average declined by 3,750 claims to 274,750. Continuing jobless claims rose by 46,000 to a seasonally adjusted 2,26 million during the week ending July 18. The four-week moving average fell by 750 to 2,255,250. The number of jobless claims is expected to reach 269,000 this week.
10. Japan rate decision: Friday. The central bank of Japan lowered its growth forecast for fiscal 2015 to 1.7% from an earlier estimate of 2.0%. Bank of Japan Gov. Haruhiko Kuroda voiced his concerns over the slumping stock prices in China and its economic  downturn effect on Japan. Chinese share prices tumbled more than 30% in a few weeks. Furthermore, Chinese economy has shifted its focus from exports to domestic demand, reducing trade volumes in Asia. The BOJ may have to downgrade its growth forecast once again if China’s economy slows further.
11. Canadian employment data: Friday, 12:30. The Canadian employment market contracted by 6,400 jobs in June amid losses in part-time jobs. The unemployment rate was maintained at 6.8%. Economists expected a higher loss of 9,000 jobs. Full time positions increased by a solid 64,800, however, part-time positions declined by 71,200 in June. The Central Bank cut rates by 0.25% in July after a former cut in January in an attempt to spur economic growth.
12. US Non-Farm Employment Change and Unemployment rate: Friday, 12:30. US jobs report for June showed another modest growth of 223,000 positions, after a solid gain of 280,000. Economists expected a higher increase of 231,000. Meanwhile, the unemployment rate ticked down to 5.3% from 5.5% in May. June’s report is strong enough to support the Fed’s rate hike plan, indicating the labor market continues to expand. US labor market is expected to add 225,000 jobs in July and the unemployment rate is forecasted to remain unchanged at 5.3%.

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Press review

Sergey Golubev, 2015.08.02 16:47

Weekly Fundamentals by Morgan Stanley: USD, EUR, JPY, GBP, CAD (based on efxnews article)

USD: Bullish
"We expect USD strength to be focused against EM and commodity currencies."

EUR: Bearish
"Many investors have hedged equity positions in Europe with short EUR. This suggests that in an environment where commodity currencies and EM may sell off, risk generally could take a hit, adding some support to EUR in the near term. Over the medium to longer term, however, we retain our bearish view on EUR."

JPY: Neutral
"We believe the BoJ is likely to refrain from further easing barring an unforeseeable shock to inflation, which should offer support to JPY. The central bank is likely focused on its new core CPI measure which does not include energy, and has grown steadily over recent months."

GBP: Bullish
"GBP performance will unfold in three phases going forward. First, broad-based GBP strength heading into the August 6 MPC meeting, where we expect the first vote for a rate hike. Second, a more selective approach after the August meeting. Finally, given the longer-term headwinds to UK growth from fiscal tightening and political uncertainty, the currency may lose steam after the first hike."

CAD: Bearish
"We like buying USDCAD on this dip, believing that as oil price uncertainty continues to mount, USDCAD will continue to head higher, testing the levels reached at the end of last week. On top of this, the second round impact of the lower oil price on the economy is likely to continue to be seen, possibly in upcoming employment data."