The Canadian labor market is widely expected to improve for the second consecutive month in September, with economists forecasting employment to rise 5.0K from the previous month, and the data is likely to encourage an improved outlook for the world’s eighth largest economy as policy makers see the nation emerging for the first recession in over a decade.
[U][B]Trading the News: Canada Net Change in Employment[/B][/U]
[U][B]What’s Expected[/B][/U]
Time of release: [B]10/09/2009 11:00 GMT, 07:00 EST[/B]
Primary Pair Impact : [B]USDCAD[/B]
Expected: 5.0K
Previous: 27.1K
[U][B]Impact Canada’s change in employment had over USDCAD for the past 2 months[/B][/U]
[U]August 2009 Canada Unemployment Rate[/U]
Labor demands in Canada improved for the rise time in four months, with the economy unexpectedly adding 27.1K jobs in August, while the unemployment rate rose to 8.7% from 8.6% in July to reach its highest level since January 1998 as discouraged workers returned to the labor force. The breakdown of the report showed part-time employment jumped 30.6K to lead the rise, with the participation rate increasing to 67.3% from 67.2% in July, while full-time jobs slipped 3.5K to mark the fourth consecutive decline, and conditions may continue to improve over the coming months as the government takes unprecedented steps to stimulate the ailing economy. Nevertheless, Bank of Canada Governor Mark Carney continued to hold a cautious outlook for the economy and sees a risk for a slower recovery as a result of the sharp appreciation in the exchange rate, and the BoC is likely to hold a dovish policy stance throughout the year.
[B] [/B]
July 2009 Canada Unemployment Rate
The Canadian labor market weakened more than expected in July, with employment tumbling 44.5K from the previous amid expectations for a 15.0K drop, while the annual rate of unemployment held steady at an 11-year high of 8.6% for the second-month as discouraged workers left the labor force. A deeper look at the report showed full-time positions slipped 29.1K during the month, with part-time jobs falling 15.4K from June, while the participation rate pulled back to 67.2% from 67.5%, and the labor market is likely to remain weak going into the following year as policy makers anticipate unemployment to rise even as the economy emerges from the recession. As a result, Bank of Canada Governor Mark Carney pledge to keep borrowing costs at the record-low throughout the first-half of 2010 in order to foster a sustainable recovery, and is likely to hold a dovish outlook for future policy as job losses intensify.
[B]What To Look For Before The Release[/B]
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:
[B]
How To Trade This Event Risk[/B]
The Canadian labor market is widely expected to improve for the second consecutive month in September, with economists forecasting employment to rise 5.0K from the previous month, and the data is likely to encourage an improved outlook for the world’s eighth largest economy as policy makers see the nation emerging for the first recession in over a decade. Business spending in Canada expanded for the fourth consecutive month in September, with the Ivey PMI rising to 61.70, which is the highest reading in a year, while leading economic indicator jumped 1.1% in August to mark the biggest rise since 2002, and conditions are likely to improve throughout the second-half of the year as the International Monetary Fund raises its economic forecast for the nation and expects the region to grow at an annual rate of 2.1% in 2010 amid an initial forecast for a 1.6% expansion in GDP. However, a report by Statistics Canada showed the economy failed to growth in July after expanding 0.1% in the previous month, while thecapacity utilization rateslipped to a record-low during the second quarter, and businesses may continue to scale back on production and employment over the coming months in an effort to weather the downturn in global trade. Nevertheless, Bank of Canada Governor Mark Carney held an enhanced outlook for the region and said “growth has resumed in Canada,” but reiterated that “persistent strength” in the domestic currency poses a threat to the recovery and stated that the board maintains “considerable flexibility” in its conduct of monetary policy even as the central bank pledges to keep borrowing costs at the record-low throughout the first half of 2010. Moreover, Mr. Carney argued that the excessive movements in the exchange rates “is a downside risk to inflation,” and expects the economy to face further headwinds as he sees an “uneven” recovery in the US, Canada’s biggest trading partner, and policy makers are likely to hold cautious outlook for the economy as the labor is expected to weaken further over the coming months. At the same time, Prime Minister Stephen Harper said that the nation is emerging from the economic downturn “only in a technical sense,” and noted that the recovery remains “extremely fragile” as households face a weakening labor market paired with tightening credit conditions, and an unexpected drop in employment is likely to weigh on the outlook for future growth as policy makers continue to see a risk for a protracted recovery.
Trading the given event risk favors a bullish outlook for the Canadian dollar as economists anticipate labor demands to improve for the second-month, and price action following the release could set the stage for a short USD/CAD trade. Therefore, if employment rises 5.0K or greater, we will look for a red, five-minute candle subsequent to the release to confirm a sell-entry on two-lots of the dollar-loonie. Once these conditions are met, we will set our initial stop at the nearby swing high, or a reasonable distance, and this risk will establish our first objective. Our second target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its target in order to preserve our profits.
On the other hand, the slump in global trade paired with fears of a slower recovery may lead businesses to take addition steps to lower their cost structure, and an unexpected drop in employment is likely to drag on the exchange rate as investors weigh the prospects for a sustainable recovery. As a result, if payrolls fall 10.0K or greater from the previous month, we will favor a bearish outlook for the loonie, and will follow the same setup for a long USD/CAD trade as the long position mentioned above, just in reverse.
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[I]To discuss this report contact David Song, Currency Analyst: <[email protected]>[/I]