Talking Points:

– USD/CAD trading above the 1.30 handle in early London trading hours

– US June NFPs firmly in the spotlight as the market seems to await the data for directional conviction

– GSI is a powerful big data indicator that can help you determine whether short-term trends will continue or reverse

The USD/CAD is holding above the 1.30 handle in early London trading hours, as the market appears to have settled into reduced activity ahead of the major event risk on the docket.

June’s US NFPs are firmly in the spotlight today. The market will want to see if the abysmal May report was a “one-off” or whether there is a clear shift in trend. Volatility seems likely to increase later on.

Taking this into consideration, we look to find short term trading opportunities using the Grid Sight Index (GSI) indicator.

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US Non-farm Payrolls take center stage today. Following the abysmal May jobs report, US rate hike expectations plummeted before completely being priced out until 2018 following the “Brexit” vote. The Unemployment Rate is expected to tick up to 4.8% from the prior 4.7% print, while the headline figure is expected to show a rise of 180K as opposed to the prior weak 38k print.

The market tends to focus on the headline figure, and a revision to the prior print could prove quite significant as well this month to counter/add to pressures stemming from the June figures. The question on participants minds might be if the May figure was a “one-off” or a shift in job growth trend. Wage growth will be in focus as well for possible indication on inflation pressures; but making things complicated could be the US Dollar’s actual response to the data. Renewed USD “safe haven” status following the “Brexit” decision puts a question mark on the “normal” response.

Adding to the potential heightened volatility is June’s Canadian Employment Figures. Unemployment is expected to uptick to 7.0% from the prior 6.9% print. The Canadian economy is expected to show a reduced addition of 6.5k to the workforce from the prior 13.8k figure, and the data could help counter/add to pressures coming from the US numbers.

USD/CAD 5-Min GSI Chart: July 8, 2016

The USD/CAD has managed to hold above the 1.30 handle at the time of writing, and the GSI indicator shows that 48% of similar past momentum events have seen upside movements. The GSI indicator calculates the distribution of past event outcomes given certain momentum patterns, and can give you a look at the market in a way that’s never been possible before, analyzing millions of historical prices in real time. By matching events in the past, GSI describes how often the price moved in a certain direction.

You can learn more about the GSI here.

USD/CAD Technical Levels:

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We use volatility measures as a way to better fit our strategy to market conditions. The market seems likely to remain subdued until the NFP figures, which could induce significant volatility. In turn, this may imply that breakout trades are preferable following the figures.

USD/CAD 30-Min Chart: July 8, 2016

The USD/CAD appears likely to see heightened volatility given the aforementioned event risk. Due to the volatility, the very short term technical levels seem unlikely to have any significance. Taking this into consideration, initial support might be found around 1.2950 followed by a support zone above 1.2920, the 1.2889 level and an area above 1.2867. A zone between the 1.28 handle and the 1.2780 level may prove significant on an outsized move.

Levels of potential resistance on a move higher may be 1.3050 followed by an area around the 1.31 handle, and what looks like a significant resistance zone above 1.3150.

When price reaches those levels, short term traders might use the GSI to view how prices reacted in the past given a certain momentum pattern, and see the distribution of historical outcomes in which the price reversed or continued in the same direction. We generally want to see GSI with the historical patterns significantly shifted in one direction, which could potentially be used with a pre-determined bias as well.

A common way to use GSI is to help you fade tops and bottoms, and trade breakouts. That’s why traders may want to use the GSI indicator when price reaches those specific pre-determined levels, and fit a strategy that can offer a proper way to define risk. We studied over 43 million real trades and found that traders who do that were three times more likely to turn a profit. Read more on the “Traits of Successful Traders” research.

Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 52.8% of FXCM’s traders are long the USD/CAD at the time of writing. Retail traders flipped net long June 28 around the resistance zone around 1.3050, and added to longs as price moved down. When price moved higher, longs were being reduced with price peaking with almost exact precision at the “flip” price level.

You can find more info about the DailyFX SSI indicator here

— Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com

To contact Oded Shimoni, e-mail oshimoni@dailyfx.com