Canadian Service Sector Slows, Housing Market Shows Signs of Recovery

The Canadian service sector experienced a slowdown for the eighth consecutive month in January, according to S&P Global Canada services PMI data released last Monday. Despite the continuation of this trend, the pace of decline improved slightly compared to December.

The headline business activity index increased from 44.6 in December to 45.8 in January. However, this index has remained below the 50 threshold indicating contraction since June. Weak market demand, influenced by high interest rates and client reluctance to commit to new projects, contributed to the contraction in business activity, as reported by survey participants.

The Bank of Canada has maintained its benchmark interest rate at a 22-year high of 5% since July, citing concerns about underlying inflation. The PMI's input price measure rose to 61.7 in January, a three-month high, reflecting increased cost pressures.

S&P Global Canada Composite PMI Output Index, capturing both manufacturing and service sector activities, rose to 46.3 in January, showing improvement from December's 44.7, the lowest level since June 2020. Manufacturing PMI rebounded to 48.3 in January from 45.4 in December but remained below the 50 threshold for the ninth consecutive month.

Canada's housing market, after a year-long slump, is displaying early signs of recovery. Realtors anticipate a potential rally fueled by pent-up demand, a chronic shortage of homes, rising rents, and expectations of an interest rate cut that could reignite inflation. However, Governor Tiff Macklem of the Bank of Canada emphasized on Tuesday that interest rates alone cannot address the significant contribution of higher shelter costs to inflation. Lowering interest rates could potentially lead to a housing market frenzy, which the central bank aims to avoid.

Expectations for a March interest rate cut in Canada have been delayed, with the money markets now indicating almost certain odds of a reduction in June. The likelihood of a rate cut in April is currently around 40%, demonstrating a shift in the anticipated timing of monetary policy adjustments.

Revised U.S. monthly consumer prices for December showed less increase than initially estimated. The Labor Department's annual revisions also revealed a slight uptick in the consumer price index for October and November. Federal Reserve officials indicated no immediate need to cut rates, influencing a positive outlook for the U.S. dollar.

Looking ahead, Tuesday's U.S. inflation figures will be closely watched for clues on the timing of potential Federal Reserve interest rate cuts. Strong jobs and growth data have already pushed back expectations for rate cuts, but any signs of rebounding price pressures could impact these predictions. Market watchers will also pay attention to statements from various Fed officials during the week, along with retail sales figures, initial jobless claims, and reports on producer price inflation and consumer sentiment. Hence, there is an anticipation that the trading of the US dollar and Canadian dollar currency pair will remain relatively steady within a limited range. This expectation is attributed to the uncertainty surrounding economic data and the minimal disparity in returns between the two countries.

Data for Technical Analysis (5H) CFD USD/CAD

Resistance : 1.3465, 1.3467, 1.3470

Support : 1.3457, 1.3455, 1.3452

5H Outlook  

Source: Investing.com

Buy/Long 1 If the support at the price range 1.3447 - 1.3457 is touched, but the support at 1.3457 cannot be broken, the TP may be set around 1.3465 and the SL around 1.3442, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3465 - 1.3475, TP may be set around 1.3480 and SL around 1.3452, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3465 - 1.3475 is touched, but the resistance 1.3465 cannot be broken, the TP may be set around 1.3455 and the SL around 1.3480, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3447 - 1.3457, TP may be set around 1.3436 and SL around 1.3470, or up to the risk appetite.       

Pivot Points Feb 12, 2024 02:54AM GMT