- USD/CAD fell from previous highs above 1.2700 as oil prices have advanced.
- Thursday’s US data dump didn’t have much of an impact on the FX market as the focus shifts to Friday’s US and Canadian jobs reports.
- Analysts have become more bearish on USD/CAD of late, according to the latest Reuters poll.
The USD/CAD has traded relatively directionless on Thursday, initially strengthening above 1.2700 as the loonie weakened along with a gains-driven slowdown in global equities, but more recently pulled back to the 1.2675 area on rising prices. oil prices. At current levels, the pair has returned to trading almost sideways on the day, with the latest US data dump having a limited impact on FX markets with more focus on European central bank meetings.
For reference, the latest US ISM Services PMI survey for January was in line with consensus, weakening to its lowest level since March 2021 to reflect post-Omicron, but remaining at solid levels. Meanwhile, the latest US jobless claims report showed initial claims dipping again in an early sign that the pandemic’s impact on the US job market began to ease in late January. . Perhaps most importantly, the fourth quarter unit labor cost data was substantially weaker than expected, matching last week’s alternative fourth quarter labor cost index figures.
Traders will look to Friday’s US labor market report for more evidence of easing wage pressures in the US, which the Fed has recently flagged as a notable upside risk to inflation. If Friday’s hourly average earnings also disappoint, that could exacerbate recent USD weakness that has seen USD/CAD pull back above 1.2750. Note that there will also be a lot of attention on Friday’s Canadian labor market report, which is due out at the same time as the US data.
Increasingly bullish forecasts
In other notable news, Reuters published a survey on Thursday that showed market participants have become more bearish on USD/CAD amid expectations of a further rise in crude oil and amid bets that the BoC will outperform. to the Fed on monetary tightening. The median three-month forecast according to the latest survey was that USD/CAD fell to 1.2500 versus last month’s three-month forecast that USD/CAD fell to 1.2600. The 12-month median forecast fell to 1.22 from 1.2350 a month ago.
technical perspective
Looking at USD/CAD on a longer time horizon and from a technical perspective, if the above forecasts prove correct, it implies that USD/CAD will break south of a long-term uptrend that has been supporting the pair since last June in the next three months. Once again, assuming the forecasts are correct, USD/CAD would break below its January lows at 1.2450 and then fall below its Q4 2021 lows at 1.2300 over the course of the rest of the year. If the long-term uptrend is broken, such a move looks likely from a technical point of view.
Conversely, if forecasts prove incorrect and USD/CAD pulls back to the upside, traders should keep an eye on the critical 1.2950 resistance zone which has capped price action since late December 2020 and before that offered support. since late 2019. Since USD/CAD has formed a long-term ascending triangle, a break above this resistance zone would be very significant from a technical point of view and would imply a push towards the next major resistance zone at mid 1.35.
Additional technical levels
Source: Fx Street
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