USDCAD: Canadian CAD Strengthens, Dollar Softens as US GDP Falters

USDCAD: The most recent employment data from Canada showed that employment increased by 231,000 (+1.2 percent) in June, following a two-month fall of 275,000. Part-time work accounted for all of the job growth, which was concentrated among young people aged 15 to 24. The unemployment rate was 7.8%, with a 61,000 decrease in the number of unemployed Canadians (-3.7 percent ). The number of people in the labor force, whether employed or unemployed, grew by 170,000 people (+0.8%). The participation rate in the labor force increased by 0.6 percentage points to 65.2 percent. As a result, there are encouraging signals that the recovery will continue as COVID-19 restrictions are likely to be lifted.

On Friday, the USDCAD pair extended the previous day’s rejection drop and saw heavy selling for the third day in a row. The pair’s downward trend, which brought it to over two-week lows, was fueled by several reasons. The US dollar was further weighed down by a minor improvement in global risk sentiment and dismal US macro data, as well as Fed Chair Jerome Powell’s dovish statements on Wednesday. Powell stressed during the post-meeting press conference that they were still a long way from making significant progress on jobs. Powell was likewise hesitant about tapering, saying that it would take a few more meetings before it could be implemented.

The US data was disappointing and the major currencies jumped the dollar and sent it down overall. Advanced GDP for the second quarter grew by 6.5%. This is a sharp increase, but it is much less than the consensus forecast of 8.5%. A soft reading could be due to a drop in inventories, which is unlikely to be a major concern. Jobless claims also fell short of consensus as both initial and ongoing claims were slightly higher than anticipated.

Dollar Weakens After a Selloff, USDCAD Drags Lower

Overnight, the dollar suffered another round of selling and is now trading at a low level. Risk aversion isn’t benefiting the dollar much. However, commodity currencies, particularly the Australian and New Zealand dollars, are following closely as the week’s worst performers. The European majors, lead by Sterling, appear to be the clear winners this week. However, before the weekend, a slew of GDP statistics from the Eurozone and Canada might change the picture.

The collapse of 1.2485 resistance turned support in the USDCAD suggests that the increase from 1.2005 may have already finished at 1.2805. The intraday trend is presently bearish, with the next cluster support at 1.2301. (61.8 percent retracement of 1.2005 to 1.2805 at 1.2311). In the event of a recovery, risk will remain marginally to the downside as long as 1.2605 resistance remains.

Any additional upward movement, on the other hand, appears to be met with severe resistance near the psychological level of 1.2500. A horizontal support breakpoint, now turned resistance at the 1.2525-30 region, corresponds with the 38.2 percent Fibo. level and is closely followed by a horizontal support breakpoint, now turned resistance near the 1.2525-30 region. A persistent move beyond the 1.2600 confluence could aid the pair in making a new attempt to challenge it.