How To Trade Canadian Net Change in Employment

[B][U]Trading the News: Canadian Net Change in Employment [/U][/B]
[B][U]What is Expected
[/U][/B]Time of release: [B]07:00 EST, 11:00 GMT 8/10/2007[/B]
Primary Pair Impact: [B]USD/CAD[/B]
Expected: 20.0K
Previous: 34.8K

[B]How To Trade This Event Risk[/B]
History shows that the Canadian employment report is a consistent market mover. Looking ahead, this trend should remain firmly intact especially as USDCAD struggles to find direction near its multi-decade lows and traders attempt to speculate on the future of Canadian monetary policy. Last month, the June release hit the wires just a few days before the Bank of Canada was expected to announce a hike to the overnight lending rate - this made for a very sensitive FX crowd. This months employment numbers have their own unique set of circumstances that will play into the USDCAD?s reaction. For one, the market is still on rate watch. After the central bank hiked rates last month, the follow up statement maintained that there may still be a ‘modest? need for further tightening. However, the more important setup for this indicator is the absence of a competing US NFP report. Usually the proximity of the American labor report dampens a USDCAD reaction or otherwise turns a move abruptly before it can play out on the Canadian numbers. This is not the case this time around. As usual, a long or short trade in reaction to the data would need to meet the obvious requirements. A surprise divergence from the forecast is necessary for the initial move; though follow through may very well rely on the details (like the number of permanent to temporary jobs).
A trade in response to a better than expected jobs report would have some running room. The initial reaction (read the first 5 to 20 minutes) will likely be driven by the headline numbers ability to impress. Should the fundamentals line up and a five-minute confirmation bar (red) form, a two-lot short position would be taken. The target on the first is set to equal the risk (the nearby swing high), so it is self-calculating. However, the discretionary nature of the second lot can be molded by the details of the employment report. Whether the jobless rate holds stead (or contracts), or there is a big jump in full-time positions, or there is a big simultaneous jump in the labor force all significant points that can determine the extent of the USDCAD?s follow through.
Given the relative position of the USDCAD, a disappointing payroll number could be a very market-moving event. There has been considerable debate over whether the pair is oversold near its multi-decade lows. So far, fundamentals like a rebound in growth, a BoC rate hike and consistent spending numbers have kept the Canadian currency up. However, a threat to the strong labor trend could have dire implications for the entire economy and undo the good will these other events have won. Should the indicator miss its mark it could rouse USDCAD buying, but a drop in the net with a contraction in permanent positions and increase in the jobless rate would make for an optimal long in event-risk terms.