USD/CAD Analysis: Bulls pause near 50% Fibo., US/Canadian jobs data eyed for fresh impetus

  • USD/CAD struggles to gain any meaningful traction on Friday and remains confined in a range.
  • The overnight bullish spike in Crude Oil prices underpins the Loonie and acts as a headwind.
  • Bets for more interest rate hikes by the Fed lend support to the USD and limit the downside.
  • Traders also seem reluctant ahead of the key monthly jobs reports from the US and Canada.

The USD/CAD pair oscillates in a narrow trading range around mid-1.3300s heading into the European session on Friday and remains well within the striking distance of a four-week high touched the previous day. The overnight sharp rise in Crude Oil prices continues to underpin the commodity-linked Loonie, which, along with subdued US Dollar (USD) price action, acts as a headwind for the major. It is worth recalling that Oil prices rallied over 4% from a one-week low on Thursday after Saudi Arabia and Russia – the world’s second and third-largest crude producers – pledged to extend a voluntary production cut till September. This comes ahead of the crucial OPEC+ meeting on Friday and raises supply concerns. Apart from this, an improved demand outlook allows the black liquid to stand tall just below its highest level since April 17 set earlier this week.

Meanwhile, a generally positive tone around the equity markets is seen weighing on the safe-haven Greenback, which, in turn, is seen as another factor capping the upside for the USD/CAD pair. That said, expectations that the Federal Reserve (Fed) will keep interest rates higher for longer should help limit any meaningful USD corrective decline from a multi-week high touched on Thursday. The incoming US macro data continues to point to an extremely resilient economy and should allow the Fed to stick to its hawkish stance, which remains supportive of elevated US Treasury bond yields and favours the USD bulls. In fact, the yield on the benchmark 10-year US government bond jumped to its highest level since October on Thursday. This, in turn, supports prospects for the emergence of fresh USD buying and should lend some support to the major, at least for now.

Traders might also prefer to wait on the sidelines ahead of the closely-watched monthly employment details from Canada and the US, due for release later during the early North American session. The Canadian jobs data, however, is more likely to be overshadowed by the popularly known US NFP report, which should influence market expectations about the Fed’s future rate-hike path and play a key role in driving the USD demand. Apart from this, Oil price dynamics should provide some meaningful impetus to the USD/CAD pair on the last day of the week. Nevertheless, spot prices remain on track to register strong weekly gains, though the mixed fundamental backdrop warrants some caution before placing fresh bullish bets.

Technical Outlook

From a technical perspective, bulls need to wait for a sustained strength above the 50% Fibonacci retracement level of the May-July downfall before placing fresh bets. The said barrier, around the 1.3375 region, is closely followed by the 1.3400 mark, above which a bout of a short-covering could lift the USD/CAD pair towards the 1.3445-1.3450 confluence hurdle. The latter comprises the very important 200-day Simple Moving Average (SMA) and the 61.8% Fibo. level. A convincing breakout through will set the stage for an extension of the recent goodish rebound from sub-1.3100 levels, or the YTD low touched in July.

On the flip side, any meaningful corrective pullback might now find some support near the 38.2% Fibo. level, around the 1.3300 mark. The subsequent downfall is more likely to attract fresh buying near the 1.3250 horizontal support and remain limited near the 1.3225 region, or the 23.6% Fibo. level. That said, some follow-through selling will negate any near-term positive outlook and shift the bias back in favour of bearish traders. The USD/CAD pair might then weaken further below the 1.3200 mark and accelerate the slide towards the 1.3160-1.3150 intermediate support before eventually dropping back to challenge the 1.3100 mark.

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