News and analysis of the USD/CAD pair
- The US jobs index is showing early signs of tension, and the Canadian dollar is gaining positive momentum after the BoC hike
- Downward momentum accelerates as positive momentum continues for CAD – ‘death cross’ and key support will be tested
- Next week: FOMC (Summary of Economic Outlook), European Central Bank and US inflation
- The analysis in this article is used chart patterns and key Support and resistance levels. For more information visit our comprehensive website Educational library
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The US jobs index is showing early signs of stress, and the Canadian dollar is rising with positive momentum after the Bank of Canada’s rise
Initial jobless claims from the US flash another early warning sign regarding a strong labor market. 261,000 people are newly unemployed as of the week of June 3 and marks the second time in recent publications that a data point has exceeded estimates. As a result, the dollar was sold off, and saw an extended move to the downside in the USD/CAD pair
The pair is now showing renewed bearish momentum and has broken beyond the long-term channel that contained the majority of the price action. In fact, the move is now testing the long-term trend line support which has seen several tests, none of which have been successful.
The “death cross” – circled in orange – provides more indications for the continuation of the downside trend from here. A daily and weekly candle closing below the trend line would naturally lead the bears to look at 1.3230 as the next support level with the level coinciding with the November 2022 low. Breakouts often retrace to retest support/resistance, so the real test of a potential bearish breakdown would be A successful test of the trend line that will actually become resistance, and a subsequent sell after that.
If the Canadian dollar’s momentum wanes and the US dollar looks to pick up steam again, then holding trend line support will be key. If the bearish momentum falters, 1.3503 will be the next level of interest with the bearish view around 1.3600 & 1.3650 invalidated.
American dollarCAD daily chart
Source: TradingView, prepared by Richard Snow
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The weekly chart reveals the 61.8% and 50% Fibonacci retracements of the major 2020 to 2021 sell-off – roughly the area that home price movements have been in the fourth quarter of 2022 and 2023 so far.
USD/CAD weekly chart
Source: TradingView, prepared by Richard Snow
Upcoming major risk events
Today, Canadian employment data may attract a few more eyes than usual given the slight rise in US Initial Jobless Claims yesterday – which caused a notable response in the dollar and highlighted the currency market’s sensitivity to incoming data.
The next crucial week in the United States economic inflation The data provides another opportunity for core inflation to finally move below the recent 5.5%-5.7% multi-month range. A weak inflation reading could see downward revisions in future price expectations and could see the USD/CAD trending further lower from here.
After the Reserve Bank of Australia and the Bank of Canada surprised the markets with a rate hike in June, could the Fed follow suit? In my opinion, I think it’s going to be a tough question, given how vocal the senior members of the Federal Reserve are about voting to forgo a hike next week with a possible one in July if the data warrants. The Fed will also release its quarterly summary of economic outlooks which should give markets a better idea of the economic outlook. US PPI will also be factored into the inflation conversation, but any surprises will have to be factored into next month. Federal Open Market Committee interview.
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– Posted by Richard Snow for DailyFX.com
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