Last week, the NFP missed expectations for a second time in a row and the previous numbers were all revised lower. This was seen as a disappointment as the labour market seems to be a touch weaker than previously expected. Nevertheless, the unemployment rate fell once again and lessened the disappointment from the miss in the payrolls number. The worse part for the Fed is that the average hourly earnings beat expectations, and such high wage growth is not consistent with a sustainable return to the 2% target. It’s worth reminding though, that the Fed will see another NFP report before the September meeting, so this NFP doesn’t change much, but the data leading into the meeting can still weigh on sentiment.
On the other hand, the BoC hiked rates by 25 bps as expected at the last meeting as the central bank doesn’t like the persistently high underlying inflation with a tight labour market. In the recently released Meeting Minutes the BoC seems less in a rush to hike rates again. The recent Canadian underlying inflation data beat expectations on all measures, and while the unemployment rate increased once again, the average hourly earnings surprised to the upside. Overall, it’s a mixed picture for the BoC but it should be more skewed to the hawkish side.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the break below the key 1.3225 support has definitely failed and the USDCAD started a strong rally towards the highs. The price is now getting near a key resistance where we have the downward trendline and the 61.8% Fibonacci retracement level. This is where the sellers are likely to step in to target the lows. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish momentum and take the price towards the 1.37 handle.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the buyers are leaning on the red 21 moving average trading into the trendline. If the price rejects the resistance, we are likely to see the buyers entering again the market at the 21 moving average acting as a dynamic support.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price is diverging with the MACD right when it’s approaching the resistance zone. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, if we get a pullback from the trendline, the buyers are likely to pile in around the 1.34 handle to target a breakout.
Upcoming Events
This week the main event will be the US CPI report on Thursday. The market is likely to focus more on the Core readings as this is what the Fed is more interested in. Higher than expected data should give the US Dollar a boost as the market’s expectations will be skewed more on the hawkish side. On the other hand, lower than expected readings should weigh on the USD as it would support the soft-landing narrative in the short-term. At the same time of the US CPI data, we will also see the latest US Jobless Claims report, which is less likely to move the market since it’s released at the same time of the CPI, but big surprises should have an effect, nonetheless. Finally, we conclude the week with the University of Michigan Consumer Sentiment report on Friday where the market is likely to focus more on the inflation expectations figures.
