USD/CAD Trading in a Triangle Ahead of Key Employment Data

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This week, the USD/CAD consolidated last week’s gains, eventually forming a triangle throughout. Tomorrow, during the Friday (12/5) session, we will be getting key employment data form the US and from Canada. Let’s examine the scenarios that might arise from these key jobs data.

USD/CAD 4H Chart 12/4
usdcad 4h chart 12/4
(click to enlarge)

Bullish Breakout and Confirmation: Entering the week, USD/CAD was in a bullish breakout from a falling channel that was forming for most of November as seen in the 4H chart. After the breakout, we saw the market support a pullback around 1.1320. Note that this support reflects respect of the broken channel resistance as support, as well as the cluster of the 200-, 100-, and 50-period SMAs as support after crossing over them. This breakout confirmation and bullish slingshot development suggested bullish continuation. The fact that the USD/CAD was bullish even before November’s falling channel adds water to the case of bullish continuation.

Hawkish BoC: This week, the Bank of Canada met and voted to hold its key interest rate at 1.00% as expected, but did sound slightly hawkish as BoC governor Stephen Poloz stated that the economy of recovering faster than he had expected. Still he was cautious, reiterating concerns in the jobs market and the decline of crude oil as barriers to recovery. In the 4H chart we can see that the BoC statement helped USD/CAD remain in consolidation the bullish confirmation.

Job Reports:

US NFP Employment Change (November)
Forecast: 231K
Previous: 214K
The Non-Farm Payroll employment change numbers are decent above 200K, but the FOMC and the market is not longer impressed with readings below 250K, mainly because the attention is now on wage growth. Poor data, closer to 200K, or even lower would have a much more negative impact on the USD, than the good impact on the USD if data were to be better than expected ie. 250K. With things in-line with expectations, the market will likely put more weight on the average hourly earnings data, which is projected to be 0.2% in November, after a 0.1% reading in October. Inability to rise to 0.2% or higher will be likely limit any positive USD-reaction and give the USD/CAD a chance to consolidate or correct further against the uptrend before November.

CAN Employment Change (November)
Forecast: 5.1K
Previous: 43.1K
Canada had two strong employment change readings in September and October (74.1K, 43.1K respectively). It is expected to come back to earth in November with a 5.1K reading. If the reading misses the already conservative forecast, we might see the USD/CAD push above the triangle and towards the November-high of 1.1466 with risk of breaking higher because all the bullish technical conditions are preserved. If we get a surprise and the NFP is not impressive, the USD/CAD will have a tough time breaking to and above 1.1466, and will likely remain in consolidation with downside risk towards 1.1190-1.1220. If price reaches that level, the market will be looking at a double top attempt, as we can see in the daily chart.

USD/CAD Daily Chart 12/4
usdcadday12042014
(click to enlarge)

Bullish Outlook is Preferred: From a technical standpoint, the favored outlook is bullish. It would take a very strong Canadian jobs data, and terrible US NFP data to pull the USD/CAD below 1.1190, and below the rising trendline from July. Expect some buyers if the market does indeed “clear out” the 1.1190 double top base. If the fundamentals still support USD/CAD (meaning the FOMC is still projected to raise rates mid-2015), we should not expect USD/CAD to fall beyond a support/resistance area around 1.10, where the 100-day SMA resides as well.

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Fan Yang has been a professional forex trader and analyst since 2007. He specializes in technical analysis and has a Chartered Market Technician designation since 2011. He was the chief technical strategist at CMSFX He was also the founder and chief currency strategist at FXTimes Over the years, Fan has not only been a trader and analyst but also an educator. As a proponent of both technical and fundamental analysis in trading, Fan advocates simplicity and discipline as key factors in making trading decisions when faced with so many "clues" and "signals". Currently Fan Yang is the chief currency analyst and webinar instructor at forexminute.com.