. Trading USD/CAD: Navigating Bearish Momentum

Trading USD/CAD: Navigating Bearish Momentum

10 May 2024

USD/CAD plunges to 1.3630 following robust Canadian employment figures.

FUNDAMENTAL OVERVIEW:

  • Following robust Canadian Employment data, USD/CAD sharply declines to 1.3630.
  • Canada’s job market saw an expansion of 90.4K new payrolls, although annual wage growth slowed to 4.8%.
  • Federal Reserve’s Bostic expressed uncertainty regarding the timing and magnitude of potential interest rate cuts.

In the early New York session on Friday, the USD/CAD pair experiences a significant decline to 1.3630 as Statistics Canada releases robust Canadian Employment data. According to the agency, employers added 90.4K jobs in April, surpassing the consensus forecast of 18K. This figure contrasts with March’s employment data, which showed a reduction of 2.2K jobs.

The Unemployment Rate holds steady at 6.1%, defying investor expectations of a rise to 6.2%. However, the annual Average Hourly Wages dip to 4.8% from March’s 5.0%. Average Hourly Wages are a key gauge of wage growth, and this decline may signal a slowdown. Slower wage growth typically dampens consumer spending, suggesting a subdued inflation outlook.

Strong job additions are expected to offset slower wage growth, potentially lessening the impact of overall Employment data on the Bank of Canada’s (BoC) interest rate outlook.

The Canadian Dollar maintains its attractiveness, buoyed by a robust rebound in oil prices. West Texas Intermediate (WTI) futures on NYMEX extend their upward trend for the third consecutive trading session on Friday. This is fueled by strong speculation that the Federal Reserve (Fed) will transition towards policy normalization starting from the September meeting. Notably, Canada’s position as a leading oil exporter to the United States means that higher oil prices contribute to the strength of the Canadian Dollar.

USD/CAD TECHNICAL ANALYSIS DAILY CHART:

Technical Overview:

USD/CAD is trading within a down channel.

USD/CAD is moving below all the Moving Averages (SMA).

The Relative Strength Index (RSI) is in Selling zone, while the Stochastic oscillator suggests Negative trend.

Immediate Resistance level: 1.3660

Immediate support level: 1.3631

HOW TO TRADE USD/CAD

After trading significantly higher, USD/CAD encountered resistance, leading to the formation of a bearish engulfing pattern. Consequently, it reversed downwards, establishing lower highs. Currently, USD/CAD is trading lower within a support zone. If this support zone is breached, further downside movement is likely.

TRADE SUGGESTION- STOP SELL– 1.3628, TAKE PROFIT AT- 1.3571, SL AT- 1.3671.