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USD/CAD poised for heightened volatility ahead of US and Canadian employment releases

The last time that very similar economic releases from the US and Canada were pitted against each other was just this past Friday, when GDP data for both countries (in different formats) were released around the same time. While US GDP (Q2, annualized) came in around as expected at +2.6%, Canadian monthly GDP for May was substantially better than expected at +0.6% against a prior consensus forecast and previous reading of +0.2%. Those Friday releases helped prompt a sharp dive for USD/CAD back below the key 1.2500 psychological level as the Canadian dollar extended its recent dominance over the US dollar. This week, another simultaneous release of similar US and Canadian data will occur, again on a Friday – this time in the form of key employment data.

The trend for USD/CAD since early May has been unmistakably bearish, characterized by a sharp, relentless plunge. This precipitous fall has been driven largely by a hawkish shift for the Bank of Canada (which raised its overnight rate this month for the first time since 2010) that has occurred during the same period as a generally dovish shift for the Fed. This sharp downtrend for the currency pair has the potential to extend even lower if recent economic data and central bank trends continue.

The most immediate catalysts for major USD/CAD price movement, as noted, will be the employment data from both the US and Canada on Friday. Headline US non-farm payrolls for July is expected at around 180,000 jobs added, after the previous month’s better-than-expected 222,000. Canada is expected to have added around 14,600 jobs in July after dramatically better-than-expected data for both May and June.

From a technical perspective, the sharp bearish trend for USD/CAD over more than the past two months has been unmistakable. Though the past week has seen a general consolidation around the key 1.2500 psychological level, the downtrend for the currency pair remains well-entrenched. If the trend in generally positive Canadian economic data continues this Friday, it could help prompt a downside extension for USD/CAD. Under the noted 1.2500 psychological level, any further drop could pressure the currency pair towards its next major downside support target around the 1.2200 level.

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