USD/CAD could soon be under 1.2000!
Non-farm payrolls (NFP) seemed to throw cold water on the economic recovery party in the US, as only 266,000 jobs were added to the economy vs 980,000 expected. In addition, the unemployment rate rose from 5.8% to 6.1%. This was enough for the Chamber of Commerce to suggest that it was time to cut the extra $300/week in employment benefits, noting that it was time for the government to stop paying people to stay home. However, the Biden administration says that people aren’t returning to work because they can’t find child and senior care.
Forex traders may have recognized something was fishy when, also last week, the ISM Manufacturing and Services PMI data, as well as they ADP Employment Change, all came in weaker than expected. This week, the US will see CPI, PPI, and Retail Sales. The expectations for headline Retail Sales is 0.3% and for the core it’s 0.9%. With stimulus checks to spend during April, the Retail Sales data will be important for traders to see if the American consumer is still spurring the US economic recovery. Meanwhile, the Fed is on hold still and may feel justified with the NFP data. They still is no signs of tapering the $120 billion/month in bond purchases until they see a “string of months” of actual strong data.
Many areas in Canada have been under lockdown since the beginning of April. As a result, Canada was expecting the Employment Change to already be negative, at -175,000. However, the actual figure came in even worse at -207,100. The unemployment rate rose from 7.5% to 8.1%. The re-openings have been spotty and there are still restrictions in many areas which should result in poor economic data for April and May. Earlier in the month, the Bank of Canada (BOC) began tapering its bond purchases, lowering to C$3 billion per week from C$4 billion per week. One must consider that the BOC may halt their tapering when they meet again on June 9th. Regardless, the USD/CAD has been falling since the April 21st central bank meeting on the back of the tapering and continued strength in crude oil. By the way, there was a cyber-attack in the US over the weekend on a gasoline pipeline which runs from Texas to New Jersey. Gasoline and Crude Oil are both higher today, as traders are waiting for more news to determine whether to push Crude Oil higher, which would result in a weaker USD/CAD.
Speaking of USD/CAD
USD/CAD has actually been falling since the Covid highs on March 18th, 2020. The pair moved lower throughout the next year in an orderly descending wedge. Falling prices were the result of both a weak US Dollar and stronger Crude prices. The expectation of a descending wedge is for price to break higher as it approaches the apex. However, since the announced tapering at the April 21st meeting, the USD/CAD has only closed in the green 2 days! The pair broke through the bottom of the wedge on April 28th and got slammed on May 6th (the day before US and Canadian payrolls) as stops were taken out below 1.2200. However, the RSI has moved into oversold territory below 30 on the daily timeframe, indicating that USD/CAD may be ready for a bounce.
On a 240-minute timeframe, since the sharp move lower on April 21st, the USD/CAD has been moving in an ordering downward sloping channel. However, on Friday, the pair broke decisively below the bottom trendline of the channel. In the short-term, the pair is forming a descending wedge of its own , along with an extremely oversold RSI. Price is expected to break to the upside, and if it hits the short-term target near 1.2150, that would allow the RSI to unwind and move back into neutral territory. There is also trendline resistance near that area. If USD/CAD breaks above there, horizontal resistance is near 1.2240/50 and then 1.2365. Below 1.2160 (horizontal support from 2017, opens the door for a fall to the psychological round number support of 1.2000.
Inflation data and retails sales will be released this week from the US for April. If the data is worse than expected, traders may look for the Fed to push tapering off until “later”, which would mean a weaker US Dollar. In addition, if Crude prices continue rising, that would mean strength to the Canadian Dollar. USD/CAD could soon be under 1.2000!
By Joe Perry, Forex.com » Official Website
Disclaimer: The information and opinions contained in this report are provided for general information only and do not constitute an offer or solicitation regarding the purchase or sale of forex currency contracts or CFDs. Although the information contained in this document has been taken from sources believed to be reliable, the author does not guarantee its accuracy or completeness, and does not assume any responsibility for any direct, indirect or consequential damage that may result from the fact that someone relies on such information.
