USDCAD It's time to go short towards 1.32!

1월 6일

I've been closely tracking the recent dynamics of the USD/CAD pair. The exchange rate approached 1.3380, seemingly propelled by investors' apprehension about upcoming critical US labor market data. The Canadian Dollar (CAD) experienced a significant drop to a new weekly low against the US Dollar (USD), followed by an unexpected rally to a three-day peak. This tumultuous movement largely stemmed from the market's response to the robust US Nonfarm Payrolls (NFP) report, which dramatically outperformed expectations by revealing that the US added 216,000 new jobs in December, well beyond the predicted 160,000. Despite the impressive job numbers, ongoing revisions have cast a shadow over the data's accuracy, with numbers for previous months being adjusted down. In Canada, the job market has been more subdued, with job additions barely exceeding the statistical margin of error. Nonetheless, a significant uptick in wage growth, peaking at a two-year high, points to a tightening labor market and the possibility of rising inflation. In the US, while job growth was strong, other economic indicators offered a mixed view. Average Hourly Earnings saw a modest rise, and the Unemployment Rate remained steady, countering expectations of an increase. The US ISM Services PMI for December fell short of projections, hinting at a slowdown in a crucial sector of the economy. Meanwhile, in Canada, the Unemployment Rate stayed consistent, and while the Canadian December Ivey PMIs showed positivity in the seasonally adjusted data, the non-seasonally adjusted figures dipped to a 12-month low, suggesting potential cyclical economic frailties. Following the NFP release, the price rebounded to the 1.3390 level, near the 0.5% Fibonacci retracement. Observing two consecutive days of essentially neutral market channels, and considering yesterday's confirmation, I sense a strengthening Canadian dollar against a softening US counterpart. Therefore, I anticipate a retraction towards 1.32 and an ongoing bearish trend that has been active for over two months. Wishing everyone a good weekend, from Nicola.