Mid-Day Report: Canadian Dollar Tumbles as Employment Market Contracted

Canadian dollar drops sharply in early US session after release of much worse than expected employment data. The job market contracted by -9.4k in June comparing to expectation of 24.0k. Unemployment rate also rose to 7.1% versus consensus of being unchanged at 7.0%. The data reinforce the case for BoC to keep rates unchanged at 1.00% as BoC governor Poloz expressed before that there’s still plenty of slack in the economy. Economists are generally expecting the central bank to keep the interest unchanged for at least a year ahead. USD/CAD’s break of 1.0693 minor resistance argues that the pair could be finally reversing recent down trends.

Elsewhere, risk markets stabilized from yesterday’s sharp sell-off. European indices are mildly higher today even though the momentum for rebound is rather weak. US futures also point to a mildly higher open. Investors seemed to believe that the financial problems of the Banco Espirito Santo SA wouldn’t spill over to other Eurozone banks. Yesterday, Espirito Santo Financial Group, which holds a 25% stake in Banco Espirito Santo (BES) and is the bank’s largest shareholder, requested to suspend its shares due to “material difficulties” at its own largest shareholder. The BES noted that it is “waiting for the release of the restructuring plan of Espirito Santo Group in order to assess the potential losses related to its exposure”.

Also released today, Australia home loan was flat in May. German CPI was finalized at 0.3% mom, 1.0% yoy in June.

Daily Pivots: (S1) 1.0636; (P) 1.0656; (R1) 1.0667; More

USD/CAD’s strong rebound and break of 1.0693 indicates that a short term bottom is formed at 1.0620 on bullish convergence condition in 4 hours MACD. Also the pair was close to 1.0608 cluster support level and medium term trend line. The larger corrective decline from 1.1278 could have completed too. Intraday bias is back to the upside for 1.0813 resistance. Decisive break there will confirm this bullish case and turn outlook bullish.

In the bigger picture, there is no clear sign that the whole up trend from 0.9633 and 0.9406 is reversing. We’ll stay medium term bullish as long as 1.0608 support holds (61.8% retracement of 1.0181 to 1.1278 at 1.0600). Rise from 0.9406 is viewed as the third leg of the pattern from 0.9056 (2007 low) and is still expected to extend to 61.8% retracement of 1.3063 to 0.9406 at 1.1666 in medium term after completing the correction from 1.1278. However, sustained break of 1.0608 will argue that the medium term trend has reversed and will turn outlook bearish.

USD/CAD 4 Hours Chart

USD/CAD Daily Chart

GMT
Ccy
Events
Actual
Consensus
Previous
Revised
01:30
AUD
Home Loans May
0.00%
-0.50%
0.00%
-0.20%
06:00
EUR
German CPI M/M Jun F
0.30%
0.30%
0.30%

06:00
EUR
German CPI Y/Y Jun F
1.00%
1.00%
1.00%

12:30
CAD
Net Change in Employment Jun
-9.4K
24.0K
25.8K

12:30
CAD
Unemployment Rate Jun
7.10%
7.00%
7.00%

18:00
USD
Monthly Budget Statement Jun

$79.0B

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