CAD faces downside risks ahead of data

FX_IDC:USDCAD   U.S. Dollar / Canadian Dollar
By Andria Pichidi - February 8, 2019

Canada’s job market is expected to show another modest increase to start the year, after the 78.4k surge in November gave way to a 7.8k rise in December. Canada employment should expand 10.0k in January. The unemployment rate on the other hand, is expected to nudge higher to 5.7% in January, from the 43-year low 5.6% in November and December. Earnings growth is expected to remain subdued, adding to the softening inflation backdrop, well below the 3.9% pace in May of 2018, at 0.4% m/m in January.

The risk for today’s data is to the downside, as January’s data so far showed a constrained Canadian economy to begin 2019, based on consumer and factory sentiment.

As the risk is for a negative print for total jobs to begin 2019, Canadian dollar could continue depreciated. USDCAD is up for a fifth consecutive day, today printing a 13-day high at 1.3328, extending a recovery from last Friday’s 3-month low. The up phase has been concomitant with a down phased in oil prices, while sustained gains in crude prices are a boon to Canada’s terms of trade, and vice versa.

Overall, USDCAD is strongly supported by 200-day SMA since April. Hence long term Support holds at 1.3126 ( 200-day SMA ), while the 20-day SMA and PP of the day provide immediate Support levels at 1.3240 and 1.3275 respectively.

Resistance holds at 1.3363-1.3375 area, presenting the area between the 50% retracement on the decline seen since 1.3660 high and January’s peak. In the scenario of disappointing jobs data today, the pair could seen reaching this area. Further gains, could lead to the 61.8% Fib. level at 1.3430 level. At this level we could face a correction lower.

From the Market perspective, a damp jobs report could underpin expectations that the BoC is stuck on the sidelines until 2020. However, BoC’s view that the current (and Q4) slowing is temporary has been supported by the recent data, as opposed to the data showing a more pronounced slowing in growth than the Bank anticipated.

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