It’s that time of the month again: the highly-anticipated jobs reports out the US and Canada will be released in less than 18 hours, and the USD/CAD is poised for a potentially large breakout. We’ve already covered our outlook for tomorrow’s NFP report here (executive summary: my colleague Neal Gilbert is calling for another strong reading, whereas my model suggests a reversion after last month’s stellar reading), but we wanted to highlight the key levels and three possible scenarios for USD/CAD specifically heading into tomorrow’s fireworks:
Scenario #1: US Jobs Print Stronger-Than-Expected, Canadian Jobs Miss Expectations
If the US NFP report is able to tack on another strong reading (250k+) and Canadian employment contracts outright, the USD/CAD should rally. The US economy has created an average of 238k over the last three months, while the Canadian labor market has been very volatile of late, alternating between positive and negative job growth over the past five months, so this scenario is definitely within play.
As we go to press, the unit is trading near the neckline of its recent double bottom pattern at 1.0940. If we do see this scenario play out, a continuation to the measured move target of the double bottom pattern at 1.1065 would be favored; incidentally, this level is nearly identical to the pair’s 2-month high near 1.1050.
Scenario #2: US Jobs Come in Lower-Than-Anticipated, Canadian Jobs Beat Expectations
As our NFP preview report (linked above) shows, I believe this outcome could be the most likely. After last month’s strong NFP report, the bar for this month’s report may be set a bit too high, while the Canadian labor market may be due for a bounce back after a weather-subdued start to the year. This outcome would likely take the USD/CAD lower, with bears initially eyeing the YTD lows at 1.0815, followed by the 200-day MA near 1.0750 if that level breaks.
Scenario #3: Mixed (Both Reports Beat, Miss, or Meet Expectations)
This scenario would be the most frustrating for traders. Depending on the particulars, the USD/CAD may rise slightly, fall slightly, or continue to consolidate into next week. In this case, traders may want to consider “fading,” or betting against, any initial moves in the pair for a reversion back to the familiar 1.0820 - 1.0940 range.
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