(Note that in forex pairs trading it is the first, or base currency that moves up and down. Where CAD is the second currency, the pair going down means CAD is going up) The loonie is attracting a lot of attention from traders again this week. Last week’s purchase of Tim Hortons by Burger King put Canada back in the spotlight and renewed trading interest has continued into this week with more news. CAD has been gaining this week against its peers on speculation that Canada could benefit from an accelerating US economy which could then keep the Bank of Canada in neutral or eventually lean toward raising interest rates. Yesterday, in its statement, the Bank of Canada took a firmly neutral stance, shying away from dovish talk instead indicating that exports are growing and housing remains a positive surprise. This was confirmed by today’s better than expected Canadian trade surplus at $2.6B which drove CAD to the top of the performance table for major currencies. The loonie has performed particularly well against EUR which has plunged after the ECB cut interest rates and announced QE is on the way in October. EURCAD broke down through $1.4270, a Fibonacci level to signal the start of a new downleg and fell toward $1.4000 round number support before stabilizing with next Fibonacci support near $1.3875 on trend. CAD also appears to be close to a turning point against USD with the potential for significant action over the next 24 hours. Tomorrow’s employment reports for both countries could be a big catalyst for trading. While the Canadian job market had outperformed the US for many years after the financial crisis, over the last several months, the US has been growing employment rapidly while Canada has been flat and lagging. Last month’s Canadian employment fiasco didn’t help matters although the upward revision to full time jobs helped a bit. Friday, traders will be looking to see if the improving US economy that has boosted Canadian exports is following through into employment, and also for more signs of whether US employment growth is fast enough to force the Fed to remove stimulus sooner. A stronger than expected US job report could boost the greenback while a stronger than expected Canadian job report could boost the loonie. For the last month, USDCAD has been bouncing around between $1.0800 and $1.1000. RSI has been falling and the recent break down through the 50 level suggests momentum is starting to turn downward. A drop below $1.0800 would call off a reverse head and shoulders base that has been forming and signal a new downleg that could potentially test the $1.0700 to $1.0650 area between a prior low and a Fibonacci level. Initial resistance on a rally, however, may appear near $1.0885.
Trading Analysis: EURCAD, USDCAD and Friday's job reports
20:00, 03 September 2014