Widened Trade Deficit Turns Canadian Dollar Weak

Widened Trade Deficit Turns Canadian Dollar Weak

Despite a strong rise in the price of crude oil, the Canadian dollar has been weak against the Yen for the past one month. A dip in the wholesale sales and a 0.1% m-o-m contraction in the GDP during August weakened the Canadian dollar. On the other hand, a rise in the inflationary pressure and the North Korean issue kept the Yen stronger. We anticipate the CADJPY pair, which closed at 89.50 on Friday to decline further due to reasons given below.

The Canadian economy added 35,300 net jobs in October, according to Statistics Canada. It was the 11th consecutive increase in the number of job additions. The reported figures were higher than 15,300 job additions expected by analysts. Last month, the economy added 10,000 jobs. Despite a strong rise in job additions, the unemployment rate increased by a notch to 6.3%, from 6.2% reported in the earlier month.

Statistics Canada also painted a dim picture on exports and imports. The trade deficit in September was unchanged from the August figure, which was downwardly revised to C$3.2 billion. The market had expected a trade deficit of only C$3 billion.

In Japan, the consumer confidence index reading hit a four year high of 44.5 in October, compared with 43.9 in the earlier month. Analysts had expected a slight decline in the consumer confidence index reading to 43.6.

Earlier last week, IHS Markit reported an improvement in manufacturing conditions in October. The final manufacturing PMI reading increased to 52.8 in October, from 52.5 in August. Analysts did not anticipate any change in the manufacturing PMI data. Notably, input cost inflation increased slightly, thereby resulting in an increase in output charges. Since September 2016, business conditions in Japan have improved every month. Thus, economic data favour a downtrend in the CADJPY pair in the week ahead.

Technically, the Schaff trend cycle indicates an overbought situation. The money flow index is also declining after reaching a level of 100. Thus, we can expect the CADJPY pair to decline in the short-term.

CADJPY - Technical Analysis - 6th November 2017

In the Forex market, we wish to establish a short position in the CADJPY pair. The entry will be made near 89.60, with a stop loss order above 90.60. The trade will be closed when the pair declines to about 88.10 levels.

Likewise, in the binary market, we may invest in a put option valid for a week. We will proceed with our investment plan only if the CADJPY pair trades near 89.60 in the spot currency market.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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