USD/CAD Exchange Rate Prediction – The Dollar is Poised to Break Out

The dollar continued to rally on Thursday ahead of Friday’s Non-Farm Payroll report. Expectations are for payrolls to rise by 700K and the unemployment rate to decline by 5.7%. The dip in jobless claims is a clue to the nature of the jobs picture regardless of the number of new jobs available. The wild card is the delta variant of the coronavirus. If this creates breakouts in areas that were returning to normal, it could generate significant volatility. The US ISM manufacturing report came out weaker than expected although the prices paid component was stronger than anticipated.

Technical Analysis

The USD/CAD continues to gain traction and is forming a bullish cup and handle continuation pattern.  A close above trend line resistance near 1.2485 would point to a bullish breakout. Support on the currency pair is seen near the 10-day moving average at 1.2360. Short-term momentum is positive as the fast stochastic generated a crossover buy signal. The Exchange rate is overbought as the fast stochastic is printing a reading of 87, above the overbought trigger level of 80, which could foreshadow a correction. Medium-term momentum is positive as the MACD (moving average convergence divergence) histogram print in positive territory with an upward sloping trajectory.

Manufacturing Remains Robust and Claims are Improving

The ISM reported on Thursday that its index slipped to 60.6 last month. Expectations were for the index to dip to 61.0 in June. The survey’s forward-looking new orders sub-index edged down to a reading of 66.0 last month from 67.0 in May.  Inventories at factories remain low, and business warehouses are almost empty.