USD/CAD: Jobs Data Collision Could Cement Loonie’s Reversal

• US and Canadian jobs data could fuel fresh volatility in USD/CAD
• A weak US payrolls print may trigger a larger market reaction than a strong one
• Key reversal candle forming on the weeklies—momentum signals suggest downside risks

Summary

While most attention on Friday will be on the US non-farm payrolls report, those trading USD/CAD will also have to contend with Canada’s jobs report—a notoriously volatile release that could add fuel to what’s already been a wild week for the Loonie.

After surging to 22-year highs on Monday, USD/CAD has spent the rest of the week unwinding the move, putting the weekly candle on the verge of printing a key reversal. Given the significance of this technical level, that would signal near-term directional risks may be shifting to the downside.

Double Trouble for Loonie Traders’

The key figures to watch in both reports are highlighted below. Apologies for the jumbled order—this is just how the data came through!

Source: TradingView

The unemployment rate is the key figure to watch. If we get wild swings in employment—which is a strong possibility relative to median forecasts—markets may ultimately focus on the unemployment signal. The US jobs report will likely take precedence over Canada’s unless the latter delivers a major surprise relative to expectations.

As discussed in a separate USD/JPY report, the significant hawkish repricing of Fed rate cut expectations since September—along with the Fed’s stance that further labour market weakness isn’t necessary to hit its 2% inflation target—means a weak jobs report could trigger a far bigger market reaction than a strong one.

Given the Canadian dollar’s poor performance against the US dollar recently, a strong Canadian jobs report could amplify any downside move in USD/CAD triggered by weak US payrolls.

USD/CAD Turning Point?

Technically, the reaction in USD/CAD will be crucial. It’s on track to print a key reversal candle on the weekly chart, having failed to hold above the January 2016 high earlier in the week.

Source: TradingView

A close at or below current levels would be a warning sign that near-term risks are tilting lower. Momentum indicators are reinforcing that message, with RSI (14) rolling over and MACD closing in on the signal line from above. After such a prolonged bullish run, the pair looks and feels heavy.

USD/CAD has tended to consolidate around big figures lately, so a break of 1.4262 would put 1.4200 and 1.4100 in focus. More meaningful support sits at 1.3978—the October 2022 high.

On the topside, the pair has struggled above 1.4500 over the past fortnight.

-- Written by David Scutt

Follow David on Twitter @scutty