USD/CAD outlook: All eyes on jobs reports – FOREX Friday

The USD/CAD outlook remains positive heading into a massive day, and week, with plenty of top-tier data that could significantly impact the direction of this currency pair. Later on in Friday’s session, we have monthly jobs reports from both North American nations, while next Wednesday will see the release of US CPI and Bank of Canada’s rate decision.

Welcome to another edition of Forex Friday, a weekly report in which we discuss selected currency themes mainly from a macro viewpoint, but we also throw in a pinch of technical analysis here and there. In this week’s shortened report, we will discuss the USD/CAD pair outlook, and look forward to next week’s key events affecting this pair.

US dollar loses steam ahead of NFP

Ahead of the US non-farm payrolls data, the US dollar failed to find any real support, despite a very strong ADP private payrolls report released on Thursday, and an above-forecast ISM services PMI.

That being said, it could be that FX traders are simply sitting on their hands and waiting for the jobs report to get out of the way, before bidding the dollar up – assuming we don’t see a substantial downside surprise.

That’s because it is not just the US releasing its monthly jobs report today…

Canadian jobs report also in focus

The monthly Canadian employment report will be the last major data release before Wednesday’s Bank of Canada rate decision. Canadian jobs data consistently beat expectations since October, until that streak ended in May, when Statistics Canada reported a 17K drop in hiring. That raised doubts as to whether the BOC would deliver a back-to-back rate hike in July. More on that later.

But it so far as today’s Canadian jobs report is concerned, well the consensus is expecting a headline print of around 20K, although the unemployment rate is seen rising to 5.3% from 5.2%. If we see the jobs data come in around these figures, the BoC could go ahead with a rate hike next week. The market is currently around 60% sure of it.

USD/CAD outlook: Next week’s key macro events for this pair

US CPI

Wednesday, 12 July

13:30 BST

The probability of a Fed rate hike on July 26 has steadily been climbing thanks to US data remaining more resilient than expected, and inflation slow to fall. If there’s one piece of data that could single-handedly influence the Fed’s decision to hike or hold, it would be the CPI report. So, expect lots of volatility around the data release.

BOC rate decision

Wednesday, 12 July

15:00 BST

The Bank of Canada was among several central banks surprising the market in June with a rate hike. While the odds of another rate rise in July have fallen slightly, the BOC remains quite concerned over whether enough has been done to bring inflation sustainably back to the 2% target. A final 25 bps hike appears more likely than not.

USD/CAD outlook: Technical analysis

The short-term USD/CAD outlook remains positive from a technical point of view. As per the chart, price has broken above the 21-day exponential average, which is one of the objective ways of knowing about the short term direction of prices. What’s more, the USD/CAD is positive on the month, having found good support from the key 1.31-1.32 long-term support area (see inset).

Therefore, we will be looking for any dips back to support to hold and resistances to break, until proven otherwise. Short-term support comes in a 1.3350ish, while a more significant support zone is around 1.3285ish, the base of this week’s breakout. While this area holds, the bulls will remain happy. However, a closing break below this area would be a bearish development.

On the upside, the next potential resistance area is seen around 1.34ish, which had served as support in June. Above this level, you have the 200-day moving average, which – as it happens – comes in right at the next big psychologically-important 1.35 handle.

With more, big, risk-events ahead of us, we would be wary of a possibly reversal around 1.3500, should we get there.

Source: TradingView.com

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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