Canada Ivey PMI Disappoints; USD/CAD Surges

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Canada Ivey PMI Disappoints; USD/CAD Surges

Canada’s Ivey PMI index fell below 50 for the first time in 7 months, with a reading of 45.4 for January. The December print was 55.4, and forecasts were for a reading around 53.8. This index comes from a survey to business managers regarding business conditions such as employment, production, new orders, prices, supplier deliveries, and inventories.
CAD Ivey PMI
(Canada IVEY PMI; source: forexfactory.com)

A reading above 50 would indicate that business conditions are improving and that businesses are growing. However a reading of 45.4 indicated that business shrank in January. According to the index:

Components:
” The employment index for January was at 50.0, indicating employment was unchanged from the previous month. The inventories index was at 46.4, indicating inventories were lower than in the previous month. The prices index was at 66.7 in January, indicating prices were higher than in the previous month. The supplier deliveries index was at 47.9, indicating supplier deliveries were slower than in the previous month” (Dow Jones News)

USD/CAD Reaction: The 1H chart below shows that USD/CAD has been retreating since the end of January, from a high of about 1.2795 to about 1.2350 during the 2/3 session. During the 2/4 session, price was consolidating ahead of the Ivey PMI release (8:30AM ET). Afterwards, the CAD fell, and the USD/CAD surged almost to 1.26 by 11:00AM ET.

USD/CAD 1H Chart 2/4
usdcad 1h chart 2/4
(click to enlarge)

The price action seen in the 1H chart does look encouraging for a return to the bullish outlook. We should still see a clear break above 1.26 followed by a hold above 1.25 for the bullish continuation signal.Then, we can expect further upside to 1.27, then the 1.2795 high, with risk of breaking higher. In fact, if we look at the monthly chart, USD/CAD looks poised to reach 1.30.

USD/CAD Monthly Chart 2/4
usdcad monthly chart 2/4
(click to enlarge)

Also note that WTI Crude retreated from 54.00 to about 50 today. The CAD is correlated to oil prices, and if oil prices continue to fall, we can be more confident that the USD/CAD is heading towards 1.30.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.