The Canadian labor market is expected to have rebounded in July with job creation of 5,000 jobs. The Canadian economy continues to feel the effects of the U.S. downturn, as growth fell 0.1% in May as exports declined. The manufacturing industry continues to weaken which was evidenced by the decline in job growth from 28,600 in May to 300 in June. Additionally, the Ivey PMI fell to 65.5 from 69.6 as its employment component fell to 46.3 from 58.2 signaling that more job losses could be forthcoming.
Trading the News: Canadian Net Change In Employment
What’s Expected
Time of release: 08/08/2008 11:00 GMT, 07:00 EST
Primary Pair Impact : USDCAD
Expected: 5.0K
Previous: -5.0K
How To Trade This Event Risk
The Canadian labor market is expected to have rebounded in July with job creation of 5,000 jobs. The Canadian economy continues to feel the effects of the U.S. downturn, as growth fell 0.1% in May as exports declined. The manufacturing industry continues to weaken which was evidenced by the decline in job growth from 28,600 in May to 300 in June. Additionally, the Ivey PMI fell to 65.5 from 69.6 as its employment component fell to 46.3 from 58.2 signaling that more job losses could be forthcoming. The softening labor market has weighed on consumer consumption which slowed to 0.4% from 0.6% in April. Also, oil prices falling 20% may have spelled the end of the commodity boom which has been the main engine of growth for the economy. If oil related companies start to draw down their payrolls then there could be a significant drop in jobs. Yet, despite growth falling 0.1% in May and three of the last four months, the BoC has left their benchmark rate unchanged the last two policy meetings as inflation risks have grown. Indeed, consumer prices rose to 3.1% in June from 2.2% the month prior, breaching the central bank’s 1%-3% target band.
The Canadian consumer has proved to be resilient and with wholesale sales rising 1.6% in May could be a sign that domestic growth will continue. This may give lead to a rise in service sector hiring which has declined the last two months. Additionally, the recent easing by the BoC should have a greater impact on growth that the efforts of the Fed, since the Canadian housing picture is considerably stronger. Therefore we would look for rebound in employment, with job creation returning to double digits for a long Canadian dollar trade (short USDCAD). If we have this bullish fundamental mix, we will look for a red, five-minute candle to confirm entry on two lots of USDCAD at market. Our stop will be placed at the nearby swing low (or reasonable distance considering the level of surprise) and the first lot’s target will be immediately set equal to this initial risk. The second target will be determined by discretion. To preserve profit, we will move the stop on the second lot to breakeven when the first takes profit.
Alternatively, a second month of job losses will spark bearish loonie sentiment. For a short we will look for a growth to remain flat or slightly improved and follow the same setup as the short, just in reverse.
