USD/CAD has been trading in a sideways range

USD/CAD

• The dollar traded lower against most of its G10 peers during the European morning Friday ahead of the US employment report for August. It was higher only against SEK and CHF, while it traded virtually unchanged versus GBP. The greenback depreciated against JPY, AUD, NZD, NOK and EUR, in that order.

• With no material releases until now, investors’ eyes are on the US employment report due out later today. This could be the most important employment report of the year, in our view, since it’s the last one ahead of the September FOMC policy meeting and may determine whether they raise rates at that meeting. The report is expected to show a 217k increase in nonfarm payrolls, slightly above the 215k print in July. Another reading above 200k would suggest that the US labor market is still gathering momentum despite the recent turmoil in China and the collapse in equity markets worldwide. A strong employment report, coming after the upward revision to the Q2 GDP figure, could bring forward expectations of a September hike, something that could boost the greenback across the board.

• At the same time, Canada’s unemployment rate for the same month is coming out. The unemployment rate is forecast to have remained unchanged, but the net change in employment is expected to show a decline. Following the recent plunge in oil prices and the reluctance of investors to push CAD higher after the better-than-expected GDP data on Tuesday, I would expect the currency to come under additional selling pressure at the release.

• USD/CAD has been trading in a sideways range between 1.3120 (S1) and 1.3350 (R2) since the 21st of August. Therefore, I would consider the short-term path to be neutral for now. However, the compensation of the aforementioned releases could be the trigger for a strong bullish leg. A clear break above the 1.3275 (R1) barrier could open the way for another test at 1.3350 (R2), the upper bound of the aforementioned range. Another break above the latter obstacle would confirm a forthcoming higher high on the daily chart, and perhaps set the stage for extensions towards the psychological territory of 1.3500 (R3). As for the broader trend, the pair is still trading well above the long-term uptrend line drawn from back the low of the 11th of July 2014. Therefore, I would consider the major path of USD/CAD to be to the upside. Nevertheless, I see negative divergence between both the daily oscillators and the price action. This is another reason I believe that a break above 1.3350 (R2) is needed to reinforce that long-term uptrend.

• Support: 1.3120 (S1), 1.3040 (S2), 1.2950 (S3)

• Resistance: 1.3275 (R1), 1.3350 (R2), 1.3500 (R3)