Currency Pair of the Week: USD/CAD

As the week continues, watch for volatility to pick up in Crude Oil and the US Dollar, which should cause USD/CAD to be on the move as well!

The headline print for September’s Non-Farm Payroll was +194,000 vs an expectation of +500,000.  On the surface this print looked extremely poor.  However, August’s print was revised higher by an additional +131,000 jobs.  Therefore, the September print was actually closer to +325,000.  In addition, the Unemployment rate fell to 4.8% from 5.2% and Average Hourly Earnings was 0.6% vs 0.4% last. With the sum of the jobs data “not bad”,  this should give the Fed the green light to announce the beginning of tapering at November 3rd meeting.  This week, the US will get CPI for September. Headline CPI is expected to be 5.3% vs 5.3% in August.  Core inflation is expected at 4% vs 4% in August.  Watch to see if traders treat this print as “transitory”.  As the government shutdown and the debt ceiling limit have been ”kicked down the road” to December, Congress will continue the battle for Biden’s US infrastructure proposal.  However, the squabbling is within the Democratic party itself.  Watch to see if an agreement is reached this week.  Any of these issues could affect the value of the US Dollar.

Your guide to the Canadian Dollar

USD/CAD has pressures coming at it from both sides.  Firstly, the Loonie often moves in correlation with Crude Oil.  With WTI crossing above $80, one could expect that the Canadian Dollar may head higher.  On the other hand, the movement of the pair is also a function of the US Dollar.  The US Dollar has been moving higher as of late, so one may expect that USD/CAD may be moving with it. However, the crude move appears to be stronger, and therefore USD/CAD has been moving lower as of late.  Let’s not forget either that Canada released their own job report on Friday.  Canada added 157,100 jobs to the economy during September vs an expectation of +65,000. What’s even more impressive is that the number of full-time jobs created was +193,600 vs -36,500 for part-time jobs!  The Unemployment Rate also dropped from 7.1% to 6.9%. In addition, Bank of Canada Governor Tiff Macklem was slightly more hawkish when he spoke last week, noting that although growth may be slower than expected, the Canadian economy is still seeing a strong recovery and higher inflation may persist for longer than expected.

 

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On a daily timeframe, USD/CAD broke below an upward sloping trendline from early July (the neckline), setting up a head and shoulders pattern. The target for a head and shoulders pattern is the distance from the head to the neckline added to the breakdown point of the neckline, which comes in near 1.2300.  On Friday, the pair broke below the 200 Day Moving Average at 1.2508 and appears to be on its way towards target.

usdcad daily

Source: Tradingview, Stone X

On a 240-minute timeframe, USD/CAD has made its way just below a support zone, as well at the 50% retracement from the June 1st lows to the to the September 20th highs, near 1.2480.  If price is to make it to the head and shoulders target near 1.2300, it must first pass through horizontal support at 1.2424 and the 61.8% Fibonacci retracement level from the previously mentioned timeframe at 1.2369.  Notice that the RSI on the 240-minute chart is on oversold conditions, therefore USD/CAD may be ready for a consolidation or a bounce before resuming its move lower. Zone resistance (previous support) is just above between 1.2480 and 1.2600, which also includes the 200 Day Moving Average at 1.2508.  The neckline of the head and shoulders pattern and the 50 Day Moving Average are just above the resistance zone near 1.2623.

usdcad 240

Source: Tradingview, Stone X

The week starts off slow for USD/CAD as Monday is the Thanksgiving holiday in Canada and the Columbus Day holiday in the US.  However, as the week continues, watch for volatility to pick up in Crude Oil and the US Dollar, which should cause USD/CAD to be on the move as well!

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