USD/CAD Retains Bearish Sequence Despite Mixed Canada Employment Report



Talking Points:

– GBP/USD Nullifies Threat of Head-and-Shoulders Reversal Ahead of BoE Meeting.

– USD/CAD Preserves Bearish Sequence Despite Lackluster Canada Employment Report.

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Ticker

Last

High

Low

Daily Change (pip)

Daily Range (pip)

GBP/USD

1.3183

1.3224

1.3094

81

130

GBP/USD is on the cusp of testing the 2017-high (1.3268), with the pair at risk for a larger advance ahead of the Bank of England’s (BoE) September 14 meeting as it nullifies the threat of a near-term reversal.

The BoE will have much to discuss as the both the headline and core U.K. Consumer Price Index (CPI) are expected to pick up in August, while Average Weekly Earnings are projected to increase for the second consecutive month in July. Keep in mind, Sir David Ramsden appointment to the Monetary Policy Committee (MPC) is likely to yield a 7 to 2 split as Ian McCaffertyand Michael Saunders continue to push for a rate-hike, but signs of heightening price pressures may encourage the BoE to slowly abandon its wait-and-see approach as some officials argue ‘the withdrawal of part of the stimulus that the Committee had injected in August last year would help to moderate the inflation overshoot while leaving monetary policy very supportive.’

In turn, the fresh rhetoric coming out of the BoE may largely shape the near-term outlook for GBP/USD as ‘monetary policy could need to be tightened by a somewhat greater extent over the forecast period than the path implied by the yield curve underlying the August projections.’

GBP/USD Daily Chart

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  • Topside targets remain on the radar for GBP/USD as it continues to carve a series of higher highs & lows, while the Relative Strength Index (RSI) highlights a bullish trigger as it breaks out of the downward trend from earlier this year.
  • Break of the 2017-high (1.3268) may spark a more meaningful run at the 1.3300 (100% expansion) handle, with the next region of interest coming in around 1.3370 (78.6% expansion) followed by the 1.3460 (50% retracement) zone, which sits just above the September 2016-high (1.3445).

Ticker

Last

High

Low

Daily Change ($)

Daily Range ($)

USD/CAD

1.2155

1.2165

1.2062

41

103

USD/CAD pares the decline following the Bank of Canada (BoC) meeting as the region’s Employment report rattles interest-rate expectations, but the pair may continue to exhibit a bearish behavior as it extends the series of lower highs & lows from earlier this month.

Even though Canada added 22.2K jobs in August, the gains were led by a 110.4K expansion in part-time employment, while full-time positions narrowed 88.1K during the same period to mark the largest one-month decline since 2010. Signs of a less dynamic labor market may encourage the Bank of Canada (BoC) to keep the benchmark interest rate on hold at the next meeting on October 25, and Governor Stephen Poloz may endorse a wait-and-see approach going into 2018 as ‘future monetary policy decisions are not predetermined and will be guided by incoming economic data and financial market developments as they inform the outlook for inflation.’

Nevertheless, the BoC may continue to prepare Canadian households and businesses for higher borrowing-costs as ‘the level of GDP is now higher than the Bank had expected,’ and the shift in USD/CAD behavior may continue to unfold over the coming months as Governor Poloz and Co. highlight an improved outlook for the real economy.

USD/CAD Daily Chart

Chart – Created Using Trading View

  • USD/CAD remains at risk for a further decline as it breaks the June 2015-low (1.2128) and preserves the bearish sequence from earlier this month; keeping a close eye on the Relative Strength Index (RSI) as it gives back the rebound from late-July and pushes back into oversold territory.
  • Need a close below the 1.2080 (61.8% expansion) hurdle to open up the next downside region of interest around 1.1890 (78.6% expansion), which sits just beneath the May 2015-low (1.1920).

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— Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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