USD/CAD to Find a New direction with Employment Data

Thursday, 31 March 2011 18:05

The Canadian dollar is trading tight before the US unemployment rate and non-farm payroll data release on Friday and is ready to break out of it’s range. Let’s take a look at the potential scenarios.

The hourly chart shows a strong base at 0.9685 (S1). On the top side, the USD/CAD is capped at 0.9728 (R1) and by a down trend line (T1). The pair is likely to trade cautiously to the upside but below R1 in the hours before the employment data release.

Like many other currencies, the Canadian dollar has profited from a weak US dollar over the past few weeks. Hence, we think that a better than expected employment data would favour the US dollar and trigger a break above the trend line T1 — up to R3 and R4.

However, given the strong fundamental factors supporting the Canadian economy such as interest rates hikes and favourable oil prices, we believe that the sellers will cap the pair bellow parity, in the long term.

On the other hand, weaker than expected employment data would send the USD/CAD below the support S1. If the pair manages to slip below March’s 0.9666, then there is no more clear support and the slide could gain momentum.