On the daily chart below, we can see that the USDCAD rejected again the 1.3650 resistance and fell back down towards the 1.3405 support. We have created a range here between the 1.3300 support and 1.3650 resistance. The USD appreciation caused by strong data in May and interest rates repricing on the hawkish side was reversed in the last two days as some Fed members hinted to a pause in June to wait and see more data. The soft readings in the ISM Manufacturing PMI and Unit Labour Costs yesterday have not helped either and the CAD took advantage.
USDCAD Technical Analysis
On the 4 hour chart below, we can see that as soon as the price broke below the upward trendline, the USDCAD started to just melt as sellers piled in aggressively and increased the bearish momentum. This fast unwind of hawkish interest rates expectations has overstretched a bit though as depicted by the price distance from the blue 8 moving average. Generally, in such instances, the price consolidates or pulls back before the next move.
On the 1 hour chart below, we can see that we have a resistance zone at the 1.3485 where the sellers may enter the market again. In fact, we can find the previous swing support turned resistance and the trendline. This zone would give the sellers a better risk to reward setup as they can have a stop just above the trendline and a target as low as the next support at 1.3300. The buyers, on the other hand, will want to see the price to break above that trendline to get back the conviction and target the breakout of the 1.3650 resistance.
Today, all attention will be focused on the US Non-Farm Payrolls (NFP) report, and various scenarios could unfold:
- In the event that the data surpasses expectations and is accompanied by higher-than-anticipated average hourly earnings, it is likely to increase the likelihood of a rate hike in June and potentially even anticipate a rate hike in July. This particular scenario might raise concerns within the market regarding a possible wage-price spiral.
- Conversely, if the data is positive but falls short of expectations regarding average hourly earnings, it is expected to further weaken the USD as it would not significantly affect rate expectations, and the market will eagerly await the Consumer Price Index (CPI) report next week.
- Should the data disappoint across all fronts, it will be perceived as negative news and may even trigger some risk aversion in the markets, leading to an increase in demand for the USD. However, considering recent comments from Federal Reserve officials, we might witness a weakening of the USD due to reduced expectations of future interest rate hikes.