Strong Employment Data Turns Greenback Bullish

Strong Employment Data Turns Greenback Bullish
June 5, 2018

The USDCAD pair declined last week after the Bank of Canada hinted about a possible rate hike in July.  The statement issued by the central bank also underlined that there will not be any further hikes in this year. Following the release of the statement, the market pushed the Canadian dollar upwards against the greenback. The USDCAD’s downtrend was also fuelled by a lower-than-anticipated US first quarter GDP growth of 2.2%. However, we anticipate the USDCAD pair, which is trading at 1.2920 levels, to march forward due to reasons given below.

The US government had exempted Canada, Mexico, and the European Union from being slapped with additional import duty on steel and aluminium until June 01, 2018. Last week, the US President refused to extend the exemption. The tariffs are now in force and is expected to affect the Canadian steel mills.  

The refusal by the US President to extend the duty exemption has put a question mark on the future of the NAFTA agreement. The NAFTA talks are already going too slow. Furthermore, the US President has reiterated his hard stance on the NAFTA agreement. If the US government announces withdrawal from NAFTA, then a new deal must be negotiated within a six-month period. If not, the Canadian dollar could lose as much as 20% of its value. The uncertainty has weakened the Canadian dollar while strengthening the greenback. Furthermore, the job data released on Friday supports further strengthening of the greenback in the week ahead.

The Bureau of Labor Statistics reported a 0.3% m-o-m increase in the average hourly earnings, compared with a 0.1% increase in the previous month. Analysts had expected a wage growth of 0.2%.

The US economy continues to add jobs at a brisk pace. Total non-farm payroll employment increased by 223,000 in May, versus economists’ expectations of 189,000. In April, the US economy added 159,000 jobs, downwardly revised from the previous estimate of 164,000. Retail trade, health care, and construction sectors reported an increase in job additions. The US unemployment rate stood at 3.8% in May, the lowest since 1969, and better than 3.9% unemployment rate posted in the previous month. Analysts did not expect any change in the unemployment rate. The number of unemployed persons has declined to 6.1 million, a decrease of 772,000 from the beginning of this year.

The solid employment data have nearly confirmed a rate hike at the next Federal Open Market Committee meeting to be held on June 13. According to the CME Group Fed Watch, the market now gives an 88.8% chance for a rate hike in the next Fed meeting. So, strong employment data and probability of a rate hike in June is turning the greenback stronger against the Canadian dollar.

The price chart provided below indicates the USDCAD pair is moving along the ascending trend line. The on balance volume indicator is also making new highs. Therefore, we are expecting the currency pair to rally in the week ahead. The chart shows 1.2710 as the minor support and 1.3340 as the major resistance for the currency pair.

USDCAD - Technical Analysis - 5th June 2018

By going long in the USDCAD pair near 1.2920, with a stop loss order below 1.2800, we are planning to gain from the probable uptrend. If the currency pair rallies as anticipated, then we will book our profit near 1.3140.

Simultaneously, we may also invest a small amount in a put option contract. We prefer to deal with a binary broker who offers an option contract, which is valid for a period of one week. Furthermore, to proceed further, we require the USDCAD pair to trade near 1.2920.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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