The Canadian labor market is expected to have rebounded in July with job creation of 5,000 jobs. The Canadian economy continues to feel the effects of the U.S. downturn, as growth fell 0.1% in May as exports declined. The manufacturing industry continues to weaken which was evidenced by the decline in job growth from 28,600 in May to 300 in June. Additionally, the Ivey PMI fell to 65.5 from 69.6 as its employment component fell to 46.3 from 58.2 signaling that more job losses could be forthcoming.

Trading the News: Canadian Net Change In Employment

Currency trading markets are primed for trend trading through the medium term, as the vast majority of forex pairs are in the midst of extended medium-term price trends. Of the 18 currency pairs we cover for this report, 14 are in “Trend” territory, three are under “Range”, and only one (the Australian Dollar) is in “Breakout” ranges. Three major central bank decisions have come and gone, and currency options traders are now geared up for depressed forex volatility through the short term. We will favor trading strategies that do best in trending currency markets, placing less weight on Range trading and high-volatility breakout trades.

DailyFX Analysts Take Caution On Canadian Dollar Trades Ahead Of Employment With the exception of USDCAD, the Canadian dollar currency crosses have held...

The Dollar continues to gain against its counterparts.  The EURUSD is nearing the May and June lows.  Interestingly, the $Index traded one tick above its June high today; setting up a possible divergence with the EURUSD.  This would be a short term EURUSD bullish signal.

The European Central Bank left rates unchanged at 4.25 percent as expected, but the Euro has pulled back sharply as ECB President Jean-Claude Trichet appears to be turning his focus toward the downside risks to growth. As a result, traders are starting to consider the potential for a rate cut by the central bank within the next year.

2007 was a momentous year for the Canadian Loonie, which rose 17.5% and even reached parity against the US Dollar. 2008 has been somewhat less kind to the Loonie; it has been battered repeatedly from falling commodity prices and the global credit crunch. Actually, even before the price of oil peaked near $140, the link between the Canadian Dollar and natural resources had begun to break down. The rationale among investors had shifted such that expensive commodities were now seen as a drag on global economic growth, and hence, bad for Canada in the long-term. Using this logic, the currency should have received a reprieve from falling prices, but this was interpreted as bad for Canada in the short-term. In other words, a lose-lose situation.

Last week, the Forex Blog covered an IMF report that claimed the period of Dollar hegemony is nowhere near finished. This view appears to be widely held, and an American economist argued in a recent op-ed piece that the Euro still trails the Dollar in terms of global prominence. Certainly, he acknowledged the collapse in confidence that has sent the Dollar spiraling downward over the last few years. Central Banks are holding an ever-increasing portion of their reserves in alternative currencies, namely Euros. Many new bond and stock issues are denominated in Euros. But ultimately, the Dollar is still Numero Uno.

The exchange rate between Zimbabwe's local currency and the US Dollar is currently 110 Billion:1, give or take a few zeroes. This complete collapse in confidence surrounding the currency is redolent of post-war Germany, when a wheelbarrow full of Deutsch Mark was required to buy a loaf of bread. The same hyperinflation, estimated at 100,000,000% on an annualized basis, has gripped Zimbabwe, causing prices to skyrocket and the local currency to plummet. As a result, the Central Bank has announced a plan to redenominate the currency by removing 10 zeroes from notes currently in circulation.

By one measure, the US Dollar has lost 33.8% of its value under President George Bush, its worst performance by far under any one administration. The burgeoning twin deficits, lackluster economic performance, as well as the current environment of stagflation have all contributed to a dramatic and unprecedented loss of confidence in the Dollar. While investors are understandably optimistic about the prospect of a new President, come January, they are ambivalent as to whether it is Barack Obama or instead John McCain that is ultimately elected. Since the Dollar seems to have bottomed out anyway, the new President stands to preside over a recovery of the Dollar. Reuters reports:

In a recent report on the state of the Dollar, the International Monetary Fund (IMF) declared that the Dollar's unprecedented period of dominance will not likely come to an end anytime soon. This assertion seems to sharply contradict the 25% depreciation (in trade-weighted terms) that has taken place since 2002. Moreover, many countries have liberalized their exchange rate regimes, such that they no longer need to maintain large stores of Dollar assets. The report's conclusion draws strength from another period of sustained Dollar depreciation (which took place from 1985 and 1991), which was likewise not able to shake the currency loose from its moorings.