Recent Canadian data could support the Bank of Canada cutting rates at the July 15th meeting. Canadian GDP for April was negative 0.1%, oil prices resumed the longer-term bearish trend, and if we see a Greek exit or a collapse in confidence with China, we could see concerns grow for the Canadian economy to enter a recession.
Earlier this morning, the Canadian dollar rallied after the US Non-Farm Payrolls and Unemployment data was released. The US economy added 223,000 jobs in June, a much more moderate pace. May’s number was revised significantly downward to 254,000 from 280,000. Unemployment rate fell to 5.3% mainly because the labor participation rate plummeted to 62.6%, the lowest rating since 1977. The U.S. dollar drop across the board mainly because the whisper number was for a headline reading closer to 250,000 jobs.
Price action on the Canadian dollar futures contract daily chart shows that price continues to drop and appears poised to test the lower boundary of the recent consolidation range of .7785 - .8235. The plunge coincides with the recent breakdown of the $60 handle with US crude oil prices and the loonie closing below the 100-day SMA.
Choppy conditions may persist as the U.S. markets will be closed for the holiday and many traders are taking positions off the table until we get passed this weekend’s Greek referendum vote. Key resistance will come from the psychological .80 handle. If we see a negative outcome iwith the vote, the loonie should remain vulnerable.
Over the next several weeks, if downward pressure is unable to break below the .7885 level, we may look to see the Canadian dollar rebound strongly.
The trade: Sell 6C, .7955 with a stop loss at .8005 and take profit at .7805. The risk/reward ratio is 1:3
Edward J. Moya
Chief Technical Strategist
WorldWideMarkets Online Trading