Loonie Advances On Revised Employment Print

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Market Snapshot (near-term 48 hour outlook)
USD/CAD: Neutral. Spot at 1.0880
EUR/CAD: Neutral. Spot at 1.4565
GBP/CAD: Neutral. Spot at 1.8194
EUR/USD: Neutral. Spot at 1.3391
GBP/USD: Slightly Bullish. Spot at 1.6726
Today’s Commentary
USD/CAD Commentary

Reversing an error in its original July jobs report, Statistics Canada’s revision to its employment data showed the Canadian economy created 41.7k jobs last month and not 200 as initially reported. Coupled with improving manufacturing sales data, the good news has given CAD bulls hope.

The last employment report, released on August 8, needed to be recalibrated due to the failure to count certain people as being in the labour force. The agency said the human error was a result of a redesign of its Labour Force Survey that is conducted every 10 years. The revised employment release issued on Friday morning showed the Canadian jobs market more than doubled expectations. However, the country’s unemployment rate was not restated and it remains at +7%.

Digging deeper, the six-month hiring moving-average climbed to +10.7k, slightly above the +4k trend implied by the previous report. The largest error appeared within the full-time headline, which was restated, down only -18.1k versus -59.7k in the initial report. The participation rate also held steady in this report at +66.1% versus falling to +65.9% in the previous July report.

In line with the processing error, nearly every sector saw some kind of sizeable revision. Professional services (+7.9k), health care and social assistance (+2.7k), information services (+2k), accommodation and food services (+2.8k), transportation (-7.3k) all swung around quite a bit. Changes on the goods-producing side of the labour force were more subdued (a +5.3k addition in the utilities space was the biggest move).

In annual terms, July’s employment figures show a gain of +156.8k jobs over July 2013, which is a +0.9% increase. Of that increase, +38.5k jobs are full-time and +118.4k are part-time positions.

On the manufacturing front sales rose +0.6% in June to C$52B — the fifth increase in six months. Even the backward revisions were good. May was revised higher to +1.7% from +1.6%.

For the CAD, and despite the stronger reports, it has again run into stubborn resistance sub $1.0900. The $1.0865-70 support is still hanging tough. From a technical perspective, it’s the 100- and 200-DMA for the pair.

From a fundamental standpoint, a stronger jobs report and a solid manufacturing sales print would suggest that the loonie has more upside potential. However, when the jobs error was reported midweek it allowed the CAD bulls to begin pricing in a more positive number for July. Investors will look to the six-month trend, which is still subdued along with wage growth (flat) for further directional conviction, and on first reflection, the Canadian jobs gain remains modest at best. Any CAD gains will continue to be a grind.

In the week ahead, investors will be looking ahead to Wednesday’s minutes of the Federal Reserve’s latest meeting, while Canada is to release data on retail sales and inflation on Friday.

Short term technicals are mixed still trading well within the August range. Support is located at 1.0850 while resistance is located at 1.0940.

Today’s expected trading range is 1.0850 – 1.0940

EUR/USD Commentary

The euro pushed higher against the dollar on Friday in spite of weak data on euro zone second quarter growth fuelling expectations for fresh stimulus by the European Central Bank.

Preliminary data on Thursday showed that euro zone gross domestic product failed to grow in the three months to June. Economists had expected a small expansion of 0.1%. Germany’s economy shrank by 0.2% in the three month to June, the first drop since 2012 and worse than forecasts for a contraction of 0.1%. French GDP was flat in the second quarter, the second consecutive quarter of stagnation.

The weak data indicated that the economic recovery in the euro area is losing momentum, adding to pressure on the ECB to do more to bolster growth after it cut rates to record lows in June.

The worse-than-expected performance of Germany, one of the world’s biggest economies is a warning ahead of the incoming quarter, when the European Union will feel hard impacts of sanctions against Russia imposed in July over its involvement in Ukraine crisis.

Overall, the market continues to expect a weaker euro into the year end with most forecasts suggesting a low 1.30 level against the USD. In the coming week news flows out of Europe will be quiet with mostly second tier data. The Fed minutes, Jackson Hole and general market movements will dictate the direction of the euro in the short term.

Short term technicals remain mixed with support located at 1.3347 while resistance is located at 1.3450.

Today’s expected trading range is 1.3350 -1.3425

GBP/USD Commentary

The GBP/USD closed the week at 1.6692 coming off a run that saw it challenging the 1.70 price level. The pound marked its sixth consecutive weekly drop against the U.S. dollar on Friday, underscoring the British currency’s retreat amid a dovish shift in monetary policy. Sterling felt the effects of the Bank of England’s inflation report on Wednesday. While the report signalled the central bank was on track to raise its key lending rates in early 2015, Gov. Mark Carney walked back expectations by emphasizing that labour market conditions remained soft.

Upcoming UK CPI data could drive important volatility in the British currency. Analysts expect that the numbers will show inflation remained below the Bank of England’s official target, and indeed low price pressures have limited expectations of future BoE interest rate hikes. And indeed the bank’s recent Quarterly Inflation Report forced an important GBP sell-off as officials talked down the likelihood of tightening policy through the foreseeable future.

Expectations have fallen so much that any higher-than-expected CPI inflation figures could spark an important GBP bounce. The subsequent BoE minutes and Retail Sales figures are less likely to move markets but remain worth watching for potential surprises.

In the week ahead, investors will be looking ahead to Wednesday’s minutes from the Bank of England. Markets will also be awaiting U.K. reports on consumer prices and retail sales.

Short term technicals continue to remain bearish with initial support located at 1.6667. A decisive break there may open up a test to the 1.6460 level.

Today’s expected trading range is 1.6675 – 1.6745

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Opening FX Rates (USD)
USD/CAD 1.0880
EUR/USD 1.3391
GBP/USD 1.6726
USD/JPY 102.45
AUD/USD 0.9322
USD/HKD 7.7504
USD/PLN 3.1275
USD/THB 31.83
Opening FX Rates (CAD)
USD/CAD 1.0880
EUR/CAD 1.4565
GBP/CAD 1.8194
CAD/JPY 94.15
AUD/CAD 1.0139
CAD/HKD 7.1164
CAD/PLN 2.8748
CAD/THB 29.26
Opening Commodities (USD)
Oil 96.40
Gold 1300.73
Silver 19.54
Economic and Event Calendar
CAD – Foreign Security Purchases Aug 18
GBP – Consumer Price Index Aug 19
USD – Building Permits Aug 19
USD – Consumer Price Index Aug 19
USD – Housing Starts Aug 19
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