Strong US labor market boosts USDCAD, mixed Canadian data signals instability

USDCAD Analysis

Performance after Wednesday
Period	Pct	Chg	Momentum
Wednesday	0.14%	19.7 Pips
Week to-date	-0.45%	-64.9 Pips
January	0.18%	25.3 Pips

Upcoming key events (London Time)

Fri 01:30 PM CAD Labour Force Net Change in Employment
Fri 01:30 PM USD Nonfarm Payroll Employment

What happened lately

In the United States, there has been a notable improvement in the labor market as evidenced by a decline in initial unemployment insurance claims. According to the Department of Labor, the claims dropped to 201,000 for the week ending on January 4, down from the previous week’s 211,000. In tandem, the Bureau of Labor Statistics reported an increase in job openings in its Job Openings and Labor Turnover Survey for November, with figures rising to 8.098 million from a revised October count of 7.744 million. These developments point towards a strengthening job market, reflecting a potentially robust economic outlook in the U.S.

On the Canadian front, mixed signals emerge from the Ivey Purchasing Managers Index. The unadjusted index showed a decline from 49.7 in November to 44.3 in December, indicating contraction in economic activity. However, the seasonally adjusted index painted a more optimistic picture, rising to 54.7 in December from 52.3 in the prior month, suggesting a recovery when accounting for typical seasonal fluctuations. These figures may reflect underlying market instability but hint at a prospect of recovery when adjustments for seasonal variations are taken into account.

Considering the USDCAD currency pair, the recent data provides insight into the market dynamics affecting the exchange rate. The U.S., given its strong labor market indicators, could experience a bullish sentiment regarding the U.S. dollar, as labor strength often correlates with economic vigor. Conversely, the mixed results from Canada’s economic indicators, with an overall worrying drop in the unadjusted PMI, could exert downward pressure on the Canadian dollar. As a result, these combined effects might lead to an appreciation in the USDCAD. Market participants will likely keep a close eye on upcoming high-impact events, such as the Labor Force Net Change in Employment reports for Canada and the Nonfarm Payroll Employment reports for the U.S., which are set for release simultaneously. These will further influence the currency pair’s trajectory in the short term.

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What can we expect from USDCAD today?

USDCAD on Wednesday rose 0.14% to 1.43751. Price is above 9-Day EMA while Stochastic is falling.

Updated daily direction for USDCAD looks bullish as the pair ended higher after Wednesday trading session.

Looking ahead for the day, immediate upside resistance level is R1 at 1.44115 with break above could target R2 at 1.44478 or figure level area. While towards the downside, we are looking at daily low of 1.43350 as an important support. Break below this level could weaken the current bullish momentum. A break above 1.44096 may suggest continuation after recent positive movement.

For the week to-date, take note that USDCAD is mixed as compared to the prior week.

Key levels to watch out:

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