USD/CAD Range Points To Reversal with Test of Parity

The USD/CAD has been in a steep decline as risk appetite has surged since a more concerted effort emerged to stem the crisis in Europe. The ECB's announcement today that they would extend their liquidity providing efforts helped ease concerns and allowed markets to focus on improving fundamentals. A jump in U.S. pending home sales and a better than expected November retail sales, raised the outlook for growth in the world's largest economy. The positive results come on the heels of strong Chinese manufacturing numbers which has been an engine for global growth. However, the U.S. labor market continues to struggle to create jobs and a dismal labor report could send traders back into the dollar as they look for safety keeping the USD/CAD within its current range of 1.000-1.0325.

Levels to Watch:

-Range Top: 1.0325 (Range, Pivot, SMA)

-Range Bottom: 1.0000 (Range, Pivot)

Charts created using Strategy Trader– Prepared by John Rivera

Suggested Strategy

• Long: Place an entry at 1.0000
• Stop: Set the stop to 0.9900-100 pips in risk
• Target: The first target is 1.0200

Trading Tip – Parity has consistently been a strong level of support for the USD/CAD as markets appears reluctant to value the "loonie" higher than the greenback given Canada's dependence on the U.S. Therefore, we are looking to take advantage of the solid support and prevailing range with a long position following a failed test of the psychological level. However, the pair has traded below the level several times including earlier this year, so we can't rule out our stop being hit before an ultimate reversal. Yet, the upside risks remain greater and we would consider re-establishing a long position with a break back above the psychological level.

Event Risk for U.S. and Canada

U.S. – The U.S. Non-farm payrolls scheduled for release on Friday will present major event risk to the markets. Forecasts are for the economy to have added 150,000 jobs with the private sector the source for all of them. An upside surprise could fuel prevailing optimism dragging the dollar lower. However, a disappointment could remind traders of the expected slow recovery in the world's largest economy, sparking a USD/CAD reversal. The ISM Non-manufacturing report should also be watched as the majority of new hires are employees to come for the service sector and sign that its expansion could be ending may dim the outlook for future hiring.

Canada – A full calendar of domestic event risk over the next week could be the catalyst for "loonie" weakness. Employment, manufacturing and housing data all will cross the wires and could confirm speculation that the export driven economy is slowing. Conversely, signs of continued growth could keep the com-dollar supported, if broader trends also align. However, the biggest threat to the Canadian dollar will be the BoC rate decision with a rate hold and dovish outlook a recipe for a sharp USD/CAD reversal. Markets continue to price in a 20% chance of additional tightening, which increases the risks for the pair following non-action.

Data for December 3-8			Data for December 3-8
Date	U.S. Economic Data		Date	Canadian Economic Data
Dec 3	Change in Non-Farm Payrolls (NOV)		Dec 3	Net Change in Employment (NOV)
Dec 3	ISM Non-Manufacturing (NOV)		Dec 6	Ivey PMI (NOV)
Dec 3	Factory Orders (OCT)		Dec 7	BoC Rate Decision
Dec 7	Consumer Credit (OCT)		Dec 8	Housing Starts (NOV)

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