The NFP report, released last Friday, again beat expectations, continuing an impressive streak of 14 consecutive good performances. However, upon closer inspection, the report reveals less favorable results. The unemployment rate surged to 3.7% from 3.4%, the biggest month-on-month rise since the pandemic began. In addition, average weekly hours also decreased slightly, which could be a sign of impending layoffs by employers. Overall, the report presented a combination of data that could be interpreted differently by different participants.
Looking at the US ISM services PMI, it reported a fairly low figure of 50.3, below expectations and just below the contraction threshold. The Employment sub-index showed contraction and the sub-index payment prices experienced a significant decline, returning to their last observed level in May 2020. As a result, the market reacted by further reducing the chances of the Federal Reserve raising rates further.
The recent surprising BoC rate hike boosted the Canadian dollar, while yesterday’s fiasco in US unemployment claims sent the US dollar further down. This is because markets are becoming increasingly comfortable with the idea that the Fed may be nearing the end of its tightening cycle even if it leaves the door open. Open for another hike.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, USDCAD eventually broke below the 1.34 support and the drop was further extended by the BoC’s rate hike. The price is now near the 1.3300 handle and is starting to see some consolidation as the market looks forward to next week’s CPI report and FOMC meeting. Until then, we may see a rally or range-bound price move, so it’s better to wait until those risk events clear up and we have a clearer picture.
USDCAD Technical Analysis – 4 Hour Timeframe
On the 4-hour chart, we see USDCAD break out after a short range at the 1.34 handle as sellers leaned against the red 21 moving average line, pushing the price downside into the BoC meeting. Now, we can see that the momentum is waning and we are entering the 1.33 handle as indicated by the divergence from the MACD. Since this is usually a signal of an imminent pullback or reversal, traders will want to take some risk before next week’s event, so if the price hits the 1.33 level, take profit at that level. There is likely to be.
USDCAD Technical Analysis – 1 Hour Timeframe
On the 1 hour chart we can see more clearly that the 1.34 handle recently broke out of the box. Since the BoC rate hike and US unemployment claims debacle, USDCAD hasn’t made much headway. This should be a clear sign that the market is waiting for the CPI and FOMC before getting certainty about its next direction. The notable levels are of course 1.33 support and 1.34 resistance. A break above the high could lead to another resistance at 1.3553, while a break below could test the critical 1.3225 level first before breaking out.