Last Friday's release of the NFP report once again exceeded expectations, maintaining its impressive streak of positive results for 14 consecutive instances. However, upon closer examination, the report unveiled less favourable findings. The unemployment rate saw a significant jump from 3.4% to 3.7%, representing the largest month-over-month increase since the pandemic began. Additionally, there was a slight reduction in average workweek hours, a potential indicator of impending layoffs by employers. Overall, the report presented a combination of data that could be interpreted differently by different participants.
Shifting our attention to the US ISM Services PMI, it reported a considerably lower figure of 50.3, falling short of expectations and narrowly missing the threshold for contractionary territory. The employment sub-index indicated contraction, and the prices paid sub-index experienced a substantial decline, returning to levels last observed in May 2020. Consequently, the market reacted by further reducing the likelihood of the Federal Reserve implementing additional interest rate hikes.
The recent surprising BoC rate hike boosted the CAD and the big miss in US Jobless Claims yesterday weakened further the USD as the market is getting increasingly comfortable with the idea that the Fed may be nearing the end of the tightening cycle even if it leaves a door open for another hike.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, the USDCAD eventually broke below the 1.34 support and extended the selloff as the BoC delivered the rate hike. The price is now near the 1.3300 handle, and we started to see some consolidation as the market is looking forward to the next week’s CPI report and FOMC meeting. We might see a bounce or just a rangebound price action until then, so it would be better to just wait until those risk events are out of the way and we get a clearer picture.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that USDCAD ranged a bit at the 1.34 handle and then broke out as the sellers leant on the red 21 moving average and pushed the price lower trading into the BoC meeting. We are now seeing some weakening momentum falling right into the 1.33 handle as depicted by the divergence with the MACD. That’s generally a signal of an imminent pullback or reversal, so we may see some profit taking at the 1.33 level, if the price gets there, as traders may want to take out some risk before the next week’s events.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more clearly the recent breakout of the box at the 1.34 handle. The USDCAD hasn’t done much since the BoC rate hike and the big miss in US Jobless Claims. This should be a clear sign that the market is awaiting the CPI and the FOMC before getting the conviction for the next direction. The levels to watch are of course the 1.33 support and the 1.34 resistance. A break to the upside, may take us to the 1.3553 resistance again, while a break to the downside should result in a test of the key 1.3225 level first and possibly a breakout afterwards.
