Last Friday, the NFP report once again surpassed expectations, extending its impressive streak to 14 consecutive beats. However, delving into the report's details reveals less favourable findings. The unemployment rate experienced a significant leap from 3.4% to 3.7%, marking the largest month-over-month increase since the pandemic began. Furthermore, there was a slight decrease in the average number of hours worked per week, a common precursor to potential layoffs.
Overall, the report offered something for everyone. Optimistic observers viewed the solid job growth positively, but they also acknowledged the higher unemployment rate and modest average hourly earnings as signs of reduced labour market tightness that could alleviate inflationary pressures. The decline in average weekly hours worked may be seen as a return to the pre-pandemic trend.
On the other hand, pessimistic analysts paid closer attention to the report's specifics rather than focusing on the headline number. They recognized that trends carry more weight than absolute figures.
In a separate development, yesterday the US ISM Services PMI came out significantly lower than expected, barely avoiding contraction territory at 50.3. The employment sub-index contracted, and the prices paid sub-index experienced a substantial decrease, returning to levels last observed in May 2020. As a consequence, the market adjusted its expectations, reducing the likelihood of additional interest rate hikes by the Federal Reserve.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, the USDCAD keeps bouncing between key levels almost perfectly. This pair has been in a big range since October of last year as there’s been little divergence between the two central banks. The price is now back to the 1.3405 support and that’s where the next direction will be decided. A bounce and a rally will take USDCAD to the 1.3554 resistance, while a breakdown will push it towards the 1.3300 support.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see how the break of the upward trendline caused the sellers to increase the bearish momentum substantially with USDCAD just melting into the 1.34 handle. The pair started to consolidate right at the support level, and this offers a clear opportunity for both buyers and sellers when the price breaks on either side.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the current box where the USDCAD has been trading since the last Thursday. Given the recent bearish developments for the USD, we should see the price breaking lower and the sellers piling in extending the fall into the 1.33 handle. If the market decides to go the other way though, a break above the 1.3460 resistance would open the door for a return towards the 1.3553 level.
Tomorrow, we have the BoC policy decision where the central bank is expected to keep rates unchanged. Given the recent better than expected economic data and stickier high inflation, it might be a hawkish event, so this is something to watch out for.
