USD/CAD Bounces Back to 1.30 on Jump in the Unemployment Rate

It was a busier start to the US session for the USD/CAD. Following the Bank of Canada’s policy decision on Wednesday, the markets have responded to a shift in sentiment towards monetary policy divergence, driven by a hawkish ECB rate hike on Thursday.

While the Loonie enjoyed a return to sub-1.30 ahead of the US opening bell, employment figures from Canada drew plenty of interest.

In August, employment increased by 39.7k versus a 30.6k fall in July. Economists forecast a 15.0k rise. As a result of the fall, the unemployment rate rose from 4.9% to 5.4%, versus a forecasted 5.0%.

A slide in full-time employment contributed to the increase. Part-time employment increased by 37.5k, while full-time employment slumped by 77.2k. The participation rate increased from 64.7% to 64.8%.

The jump in the unemployment rate is a good reason for the BoC to rethink its policy goals, particularly with the brewing housing crisis.

USD/CAD Price Action

At the time of writing, the USD/CAD was down 0.42% to 1.30332. A bearish morning saw the USD/CAD slide from an early high of 1.30939 to a low of 1.29817.

The USD/CAD pair fell through the First Major Support Level (S1) at 1.3057 and the Second Major Support Level at 1.3026 before a return to 1.30 in response to the stats.

Technical Indicators

The USD/CAD will need to move through S1 and 1.3108 pivots to target the First Major Resistance Level (R1) at 1.3140 and the Thursday high of 1.31594. However, market risk sentiment will need to deteriorate materially to support a return to 1.31.

In case of a ‘risk-off’-fueled extended rally, the USD/CAD should test the Second Major Resistance Level (R2) at 1.3191 and resistance at 1.32. The Third Major Resistance Level (R3) sits at 1.3273.

Failure to move through S1 and the pivot would bring S2 (1.3026) and the Third Major Support Level (S3) at 1.2944.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal. This morning, the USD/CAD pair sat below the 100-day EMA, currently at 1.30538.

The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals for the USD/CAD pair.

Failure to move back through the 100-day EMA leaves S2 (1.3026) and the 200-day EMA ($1.2996) in play. However, a breakout from S1 and the 100-day EMA would bring the 50-day EMA (1.30973) and 1.31 into view.

The US Session

It is a quiet day ahead, with no major US stats to consider. The lack of stats will leave FOMC member chatter in focus. However, FOMC members will need to talk of more than 75 basis points to reverse the greenback’s morning losses.