USDCAD breaks support ahead of US and Canadian employment reports

Summary

• USDCAD: Dollar/CAD sits precariously lower this morning after yesterday’s corrective AUDJPY flash crash move escalated into all out reversals higher for AUDUSD and GBPUSD.  This, when combined with a horrible US ISM print for December released yesterday morning, put swift selling pressure on the USD more broadly and knocked USDCAD down all the way to trend-line support in the 1.3470-80s.  We felt late yesterday that this level needed to hold in order to keep buyers interested, but it has since given way in overnight trade which is a bit concerning.  Oil prices are extending gains this morning to the tune of 2% and we’re seeing follow-through buying in AUDUSD and GBPUSD.  Some trend-line support in the 1.3430-40s is now holding USDCAD as traders await the December employment reports out of the US and Canada at 8:30amET.  After that we’ll have a speech from the Fed’s Powell at 10:15amET, and finally the weekly EIA oil inventory report at 11amET.

   

  Expectations

   

  US NonFarm Payrolls: +177k 

  Wages: +3% YoY and +0.3% MoM

  UR: 3.7%

   

  Cdn Net Chg Employment: +5k 

  Wages: +1.6%

  UR: 5.7%

   

  Expect a move back above the 1.35 level should we get strong US and weak Canadian data.  Conversely, expect chart support in the 1.3370s to be tested should we get the opposite.  We think USDCAD risks unravelling its 3 month uptrend should the 1.35s not be regained with confidence today.

• EURUSD: Euro/dollar is trading quietly, within the trend-line resistance zone of 1.1410-30, this morning as market participants await the latest read on US employment growth.  This level was the natural target for buyers to attack after the US ISM report for December missed expectations by a wide margin yesterday.  While the level should be enough to invite sellers back in after Wednesday’s massive bearish outside day, this is not occurring with any confidence this morning.  This tells us we might have to readjust here for a potentially disappointing US employment figure and an upside test of the high 1.14s.  Germany report a slightly better than expected unemployment report today while the Eurozone CPI figures for December came in marginally weaker than expectations.

• GBPUSD: Sterling continues its rebound today; extending to trend-line resistance in the 1.2680-90s.  This comes after yesterday’s spike low and swift reversal higher following the AUDJPY flash crash.  The US non-farm payrolls report is up next, with market momentum now pointing to the upside.  Expect a further rally into the high 1.27s should we get weaker than expected data.  Conversely, expect a test of support in the 1.25s should we get a strong number.  The UK’s Theresa May and the EU’s Juncker are expected to have a phone call later this morning.  This comes after reports that EU leaders will provide May with “clarifications” to help win over the UK House of Commons.  Parliamentary debate on the Brexit deal is set to resume next Wednesday.  Latest word is that May is trying to get the meaningful vote set for Jan 15 or 16.

• AUDUSD: The Aussie continues its reversal this morning after the market recovered strongly from the AUDJPY crash yesterday.  The NY close came in above the 0.7000 mark, which boded well for the chart technicals, and so we continue to head higher here ahead of the US employment report.  We’re trading just shy of trend-line chart resistance in the 0.7060s.  A move above here would invite further buying into the 0.7100 level we feel.  A quick look at the AUD CME open interest figures for yesterday reveal a small increase in new positions, which tells us the funds didn’t do much of anything yesterday despite the volatility.  Could this unchanged short fund positioning be the fuel for further gains?

• USDJPY: Dollar/yen hasn’t done much over the past 24hrs as traders continue to digest the massive change to the chart technicals.  Resistance remains at the 108.70s, while support is still 107.00, then 105.50.  Neither levels have been seriously tested though as traders have reason to pause ahead of the US jobs report.  The Bank of Japan responded to the yen volatility overnight by saying “we can’t overlook movements that deviate from market fundamentals” and “the government will remain committed to taking measures where necessary”.  We can’t say that rhetoric is all that springing given the BOJ’s usual dovish tone, and so traders largely shrugged this off we feel.  The funds added over 5k contracts in new positions during yesterday’s volatility.

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About the Author

Erik Bregar - Director, FX Trading

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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