The Canadian dollar (CAD) finds itself pinned against a resurgent US dollar (USD) heading into Friday’s crucial employment reports from both nations. Reduced expectations of early Fed rate cuts have fuelled a broader USD rally, dampening the Loonie’s previously buoyant mood.
Markets have dialled back bets on aggressive Fed easing this year, with less than 140 basis points of cuts priced in compared to 75 bps anticipated in December. This shift bolsters the USD, putting pressure on CAD. Data reveals sluggishness in the Canadian economy, with the manufacturing PMI contracting and service sector activity declining for seven straight months. This raises concerns about a potential recession, further weakening the Loonie.
Markets eagerly await the December Non-Farm Payrolls (NFP) data, which is expected to reveal 170,000 new US jobs. A stronger-than-expected figure could solidify the USD’s bullish momentum, while a weaker number might spark a dovish swing and offer the CAD a reprieve.
Canada’s December employment report, released concurrently with the NFP, could further shape the currency pair’s trajectory. A robust jobs figure could ease recessionary fears and support the CAD, while a disappointing reading might exacerbate concerns and weaken the Loonie.
The 4-hour chart shows that the USDCAD currently hovers near 1.33715, with the price action recently breaking above the 20-SMA, 50-SMA, and 100-SMA. This suggests bullish momentum, but the rising RSI approaching 67 indicates overbought territory, potentially signalling a pullback.
Short-term trading opportunities could exist towards the resistance level at the 1.34073 price level should the bulls sustain a push higher. A break above the initial resistance could confirm the bullish momentum, likely bringing the resistance at 1.34560 into play.
Conversely, short-term trading opportunities could arise towards the initial support at 1.33176 should the reports push the price action below the 100-SMA. A break below the 1.33176 level would likely bring the 1.32744 and 1.32284 support levels into play in the short term.
The USDCAD stands on a knife’s edge, poised for a potential breakout after recent technical gains. However, the direction hinges on the December NFP and Canadian jobs data. A strong US jobs report and weak Canadian figures could send the USD soaring towards 1.34560, while a dovish surprise from the US and robust Canadian data might see the CAD reclaim 1.33176. Stay tuned for the Friday jobs fireworks, and buckle up for a potentially volatile ride in the USDCAD.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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