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USD/CAD News and Analysis
- US jobs indicator signals early signs of stress, CAD rides positive momentum after BoC hike
- Bearish momentum accelerates as CAD continues positive momentum – ‘death cross’ and major support will be tested
- Week ahead: FOMC (summary of economic projections) , ECB, US inflation
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
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US Jobs Indicator Signals Early Signs of Stress, CAD Rides Positive Momentum after BoC Hike
Initial jobless claims out of the US flashed another early warning signal regarding the otherwise robust job market. 261 thousand people were newly unemployed as of the week of 3 June and represented the second time in recent prints that the data point exceeded estimates. As a result, the dollar sold-off, seeing an extended move to the downside for USD/CAD
The pair now shows renewed downside momentum and has broken beneath the longer-term channel that has contained the majority of price action. In fact, the move now tests the long-term trendline support that has witnessed multiple tests, none of which were successful.
The ‘death cross’ – circled in orange – provides further indications of a bearish continuation from here. A daily and weekly candle close below the trendline would naturally have bears looking at 1.3230 as the next level of support with the level coinciding with the November 2022 swing low. Breakouts often retrace to retest support/resistance and so a true test of a potential bearish breakdown would be a successful test of the trendline which would effectively become resistance, and subsequent selling thereafter.
Should CAD momentum wane and the US dollar look to claw back lost ground, a hold of trendline support will be key. If the bearish momentum were to falter, 1.3503 would be the next level of interest with an invalidation of the bearish viewpoint around 1.3600 and 1.3650.
USD/CAD 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 zone that has been housing price action for the last quarter of 2022 and 2023 this far.
USD/CAD Weekly Chart
Source: TradingView, prepared by Richard Snow
Major Risk Events Ahead
Today, Canadian employment data may attract a few more eyes than normal given the uptick in US initial jobless claims yesterday – which caused a notable response in the dollar and highlights FX market’s sensitivity to incoming data.
Next week crucial US inflation data provides another opportunity for core inflation to finally move below the recent 5.5% – 5.7% multi-month range. A softer inflation print could see downward revisions in future rate expectations and may see the USD/CAD head even lower from here.
After the RBA and BoC surprised markets with hikes in June, could the Fed follow suit? In my opinion I think it would be a tough ask, given how vocal prominent members of the Fed have been about voting to forgo a hike next week with the possibility of a hike in July should the data necessitate one. The Fed will also release its quarterly summary of economic projections which ought to provide markets with a better idea of the economic outlook. US PPI will also factor into the inflation conversation but any surprises there will need to be factored into next month’s FOMC meeting.
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— Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
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