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USDCAD aiming to recoup recent declines

Summary:

  • USDCAD hit its lowest level since September after Friday’s data
  • Price has failed to breach the lows since; is a recovery ahead?
  • Canadian housing starts disappoint

With all the hype surrounding last Friday’s NFP report it was easy to overlook the Canadian equivalent, but those that didn’t would have been rewarded with the biggest move in all FX pairs after the releases with the USDCAD plummeting by around 150 pips in the half hour following the release

A move of this magnitude often carries on for longer than the initial reaction, especially given that the Canadian data was so strong and the US data a bit of a disappointment. However, this has not been the case and after making a low of 1.2354 the pair has recovered somewhat. Taking a fib from the simultaneous release of US and Canadian jobs data shows that the market has pulled back towards the 61.8% retracement and ran into resistance around 1.2446. 

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 USDCAD has recovered more than half of the decline seen following the release of Friday’s jobs data. Source: xStation

Today is relatively light on the data front with Canadian housing starts one of the standouts. The data for December shows that 217k house were begun to be built which is a fairly large drop on the 252k previously. In addition, against a consensus forecast of 240k the reading is also a sizable miss and given that the past 6 prints had all beaten estimates today’s number is a clear disappointment. 

A daily chart reveals that Friday’s low was in fact the lowest level seen since late September and also met the target of a breakout from the consolidation period seen throughout much of November and December at 1.2403. Given the bounce shown on the M30 chart above the pair has yet to have a daily close below the 1.24 handle in the leg lower and this could be seen to be a possible support zone. 

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 USDCAD is hovering near prior support around the 1.24 handle. Source: xStation

US inflation and retail sales data on Friday could prove important for the USD side of the pair whilst CAD traders will be looking to next Wednesday’s BOC decision as a potentially major event. The BOC are expected to hike rates for a 3rd time in 6 months on the 17th Jan and derivatives markets are currently pricing in a greater than 80% probability that the overnight rate is increased to 1.25%. 

 

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