USDCAD: Bulls Defend 1.2400, Dueling Jobs Reports on Tap for Friday

Last week, we highlighted the near-term bullish channel on USDCAD and concluded that “….a near-term dip back to 1.2400 is certainly in play heading into the end of this week, but as long as buyers step in to defend that level and the bottom of the channel near 1.2350, the bulls will remain in control” (see “USDCAD Bulls in Control Above 1.2400” for more). After pulling back to that key level late last week, the North American pair rallied back to the mid-1.2500s on Monday, then reversed back down to 1.2400 yesterday. With the bullish channel conclusively broken, traders are wondering: “Is this the end of USDCAD’s near-term climb?”

While yesterday’s drop through the rising channel was a definite setback, the chart suggests that USDCAD bulls still have the upper hand. At the most basic level, rates have yet to put in a lower low and lower high, meaning the bullish trend is intact by default. The pair has found clear support at the key 1.2400 level overnight and has rallied all the way back to 1.2500 as of writing. Meanwhile, the 4-hour MACD indicator is still (just) above its “0” level, showing that the momentum still favors the buyers for now. Likewise, the RSI indicator found support at the 40 level, leaving it in bullish territory.

Of course, the technical picture is only one side of the ledger, and this week features a couple of marquee fundamental announcements for both the US and Canada as well. Most prominently, traders will have a chance to directly contrast the labor markets on both sides of the 49th parallel on Friday, when both Canada and the US will release their employment reports at 8:30am ET (12:30 GMT); for reference, US expectations are centered on expectations of a 226k reading and steady unemployment rate 5.4%, while traders anticipate a 10.2k net increase in Canadian employment and an unemployment rate at 6.8%. The market will also get its first glance at US Service PMI data (today at 10:00 ET/14:00 GMT) and Canadian Ivey PMI (tomorrow at 10:00 ET/14:00 GMT) ahead of Friday’s dueling jobs reports.

Given the mixed technical picture and onslaught of fundamental data, traders will have a lot to digest ahead of the weekend. However, our view hasn’t changed substantially since last week: as long as USDCAD remains above 1.2400, the bulls are in control. If we see supportive US data and/or weak economic reports out of the Great White North this week, USDCAD could make a run at the convergence of early April high and 78.6% Fibonacci retracement at 1.2650. On the other hand, if disappointing US or strong Canadian data helps bears overcome the buying support at 1.2400, a deeper retracement to 1.2300 or 1.2200 is possible heading into next week.