Wednesday, 08 April 2009 11:44:16 GMT
Written by David Song, Currency Analyst
Full Article
The Canadian dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast employment to drop another 50.0K in March, while the jobless rate is anticipated to reach an eight-year high of 8.0%, and fears of a deepening recession are likely to weigh on the exchange rate as growth prospects deteriorate at a record pace.
Trading the News: Canada Net Change in Employment
What’s Expected
Time of release: 04/09/2009 11:00 GMT, 07:00 EST
Primary Pair Impact: USDCAD
Expected: -50.0K
Previous: -82.6K
Impact Canada’s change in employment had over USDCAD for the past 2 months
February 2009 Canada Unemployment Rate
The Canadian labor market lost another 82.6K jobs in February following the record-drop in the previous month, which pushed the annual rate of unemployment to a six-year high of 7.7% from 7.2% in January, and the data continues to reinforce a dour outlook for the world’s eighth largest economy as growth prospects deteriorate at a record pace. A deeper look at the report showed that full-time positions fell 110.9K during the month, while part-time jobs increased 28.3K from January, and conditions are likely to get worse throughout the first half of the year as the economy faces a deepening downturn. Meanwhile, the Bank of Canada took unprecedented steps to steer the nation out of a recession by lowering the benchmark interest rate to a record-low of 0.50%, and may take further steps to stimulate the ailing economy as growth and inflation falter.
January 2009 Canada Unemployment Rate
Canada shed 129.0K jobs in January, which marked the largest drop in employment since comparable records began in 1976, and pushed the jobless rate to a four-year high of 7.2% from 6.6% in December, and conditions are likely to get worse as the region faces its first recession since 1992. The breakdown of the report showed that full-time positions fell another 113.9K after posting a 70.7K drop in December month, while part-time jobs slipped 15.1K from the previous month. The data continues to reinforce a dour outlook for growth and inflation, and undermines the BoC’s encouraging forecast for a pronounced recovery in 2010, which could lead policy makers to adopt a zero interest rate policy over the near-term in order to avoid a deepening recession. As a result, the BoC is likely to lower the key rate to 1.00% next month, which would be the lowest level since the central bank was established in 1934.
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the CAD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on USDCAD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the CAD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on USDCAD ahead of the data release.
How To Trade This Event Risk
The Canadian dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast employment to drop another 50.0K in March, while the jobless rate is anticipated to reach an eight-year high of 8.0%, and fears of a deepening recession are likely to weigh on the exchange rate as growth prospects deteriorate at a record pace. The fourth quarter GDP report showed that the annual rate of growth dropped the most since 1991, while labor productivity unexpectedly fell 0.5% from the third quarter, and the outlook for private-spending remains bleak as firms continue to cut back on production and employment in an effort to reduce costs. Moreover, business spending fell for the fifth consecutive month in March, while the leading indicator dropped 1.1% in February, which is the biggest decline since 1981, and the data continues to reinforce a dour outlook for growth and inflation as trade conditions falters. Canada’s trade deficit widened to C$993M in January, which is largest since recordkeeping began in 1971, as exports plunged 9.0% during the month, while manufacturing shipments dropped 5.4% to C$41.7B to reach its lowest level since May 1999, and conditions are likely to get worse as the U.S., Canada’s biggest trading partner, faces its worst recession in over half a century. As a result, BoC Governor Mark Carney dropped his reluctance to use tools beyond the interest rate to manage monetary policy, and said that the central bank stands ready to ‘provide additional monetary stimulus, if required’ through the use of credit and quantitative easing. Accordingly, market participants speculate that the central bank may cut the benchmark interest rate by another 25bp later this month as the economy faces its first recession since 1992, while policymakers may take additional steps to stimulate economic activity as the downturn in the global economy intensifies. Meanwhile, Finance Minister Jim Flaherty said that he saw ‘some small signs of little process’ during an interview with BNN television earlier this week, which spurred hopes for a recovery this year, but went onto say that he expects the downturn in the labor market to continue throughout the year. Mr. Flaherty went onto say that ‘we’ll do whatever we have to do to ease the way for Canada out of this recession and come out of it strongly,’ and the comments suggests that the government is considering to take further steps to jump-start the economy as growth and inflation falters.
Trading the given event risk clearly favors a bearish forecast for the Canadian dollar but nevertheless, an enhanced labor report could reinforce an improved outlook for the region, and would certainly set the stage for a long loonie trade. Therefore, if employment falls less than 30.0K with the jobless rate holding below 8.0%, we will look for a red, five-minute candle following the release to confirm a sell entry on two-lots of USD/CAD. Once these conditions are met, we will set our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be based on distraction, and in order to safeguard our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
Conversely, deteriorating trade conditions paired with fears of a deepening downturn are likely to weigh on businesses, and a dismal labor report would certainly favor a bearish trade for the given event risk. As a result, an in-line print or a drop of more than 50.0K in employment would lead us sell the Canadian dollar, and we will follow the same setup for a long dollar-loonie trade as the short position listed above, just in reverse.
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.
Written by David Song, Currency Analyst
Full Article
The Canadian dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast employment to drop another 50.0K in March, while the jobless rate is anticipated to reach an eight-year high of 8.0%, and fears of a deepening recession are likely to weigh on the exchange rate as growth prospects deteriorate at a record pace.
Trading the News: Canada Net Change in Employment
What’s Expected
Time of release: 04/09/2009 11:00 GMT, 07:00 EST
Primary Pair Impact: USDCAD
Expected: -50.0K
Previous: -82.6K
Impact Canada’s change in employment had over USDCAD for the past 2 months
February 2009 Canada Unemployment Rate
The Canadian labor market lost another 82.6K jobs in February following the record-drop in the previous month, which pushed the annual rate of unemployment to a six-year high of 7.7% from 7.2% in January, and the data continues to reinforce a dour outlook for the world’s eighth largest economy as growth prospects deteriorate at a record pace. A deeper look at the report showed that full-time positions fell 110.9K during the month, while part-time jobs increased 28.3K from January, and conditions are likely to get worse throughout the first half of the year as the economy faces a deepening downturn. Meanwhile, the Bank of Canada took unprecedented steps to steer the nation out of a recession by lowering the benchmark interest rate to a record-low of 0.50%, and may take further steps to stimulate the ailing economy as growth and inflation falter.
January 2009 Canada Unemployment Rate
Canada shed 129.0K jobs in January, which marked the largest drop in employment since comparable records began in 1976, and pushed the jobless rate to a four-year high of 7.2% from 6.6% in December, and conditions are likely to get worse as the region faces its first recession since 1992. The breakdown of the report showed that full-time positions fell another 113.9K after posting a 70.7K drop in December month, while part-time jobs slipped 15.1K from the previous month. The data continues to reinforce a dour outlook for growth and inflation, and undermines the BoC’s encouraging forecast for a pronounced recovery in 2010, which could lead policy makers to adopt a zero interest rate policy over the near-term in order to avoid a deepening recession. As a result, the BoC is likely to lower the key rate to 1.00% next month, which would be the lowest level since the central bank was established in 1934.
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario:
If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the CAD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on USDCAD ahead of the data release.
Bearish Scenario:
If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the CAD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on USDCAD ahead of the data release.
How To Trade This Event Risk
The Canadian dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast employment to drop another 50.0K in March, while the jobless rate is anticipated to reach an eight-year high of 8.0%, and fears of a deepening recession are likely to weigh on the exchange rate as growth prospects deteriorate at a record pace. The fourth quarter GDP report showed that the annual rate of growth dropped the most since 1991, while labor productivity unexpectedly fell 0.5% from the third quarter, and the outlook for private-spending remains bleak as firms continue to cut back on production and employment in an effort to reduce costs. Moreover, business spending fell for the fifth consecutive month in March, while the leading indicator dropped 1.1% in February, which is the biggest decline since 1981, and the data continues to reinforce a dour outlook for growth and inflation as trade conditions falters. Canada’s trade deficit widened to C$993M in January, which is largest since recordkeeping began in 1971, as exports plunged 9.0% during the month, while manufacturing shipments dropped 5.4% to C$41.7B to reach its lowest level since May 1999, and conditions are likely to get worse as the U.S., Canada’s biggest trading partner, faces its worst recession in over half a century. As a result, BoC Governor Mark Carney dropped his reluctance to use tools beyond the interest rate to manage monetary policy, and said that the central bank stands ready to ‘provide additional monetary stimulus, if required’ through the use of credit and quantitative easing. Accordingly, market participants speculate that the central bank may cut the benchmark interest rate by another 25bp later this month as the economy faces its first recession since 1992, while policymakers may take additional steps to stimulate economic activity as the downturn in the global economy intensifies. Meanwhile, Finance Minister Jim Flaherty said that he saw ‘some small signs of little process’ during an interview with BNN television earlier this week, which spurred hopes for a recovery this year, but went onto say that he expects the downturn in the labor market to continue throughout the year. Mr. Flaherty went onto say that ‘we’ll do whatever we have to do to ease the way for Canada out of this recession and come out of it strongly,’ and the comments suggests that the government is considering to take further steps to jump-start the economy as growth and inflation falters.
Trading the given event risk clearly favors a bearish forecast for the Canadian dollar but nevertheless, an enhanced labor report could reinforce an improved outlook for the region, and would certainly set the stage for a long loonie trade. Therefore, if employment falls less than 30.0K with the jobless rate holding below 8.0%, we will look for a red, five-minute candle following the release to confirm a sell entry on two-lots of USD/CAD. Once these conditions are met, we will set our initial stop at the nearby swing high (or reasonable distance), and this risk will determine our first target. Our second target will be based on distraction, and in order to safeguard our profits, we will move the stop on the second lot to breakeven once the first trade reaches its target.
Conversely, deteriorating trade conditions paired with fears of a deepening downturn are likely to weigh on businesses, and a dismal labor report would certainly favor a bearish trade for the given event risk. As a result, an in-line print or a drop of more than 50.0K in employment would lead us sell the Canadian dollar, and we will follow the same setup for a long dollar-loonie trade as the short position listed above, just in reverse.
DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.