Poor Non-farm Payrolls Data Turns US Dollar Weak

Poor Non-farm Payrolls Data Turns US Dollar Weak

The greenback fell against the Canadian dollar last week after Trump threatened to impose another $100 billion worth of trade tariffs on Chinese products. As expected, China said it will hit back in a similar fashion. The Canadian dollar, on the contrary, strengthened due to progress in NAFTA talks. We anticipate the USDCAD pair, which is trading at about 1.2720, to remain on a declining note in the week ahead due to details provided underneath.

Last Thursday, the Canadian Prime Minister Justin Trudeau confirmed that the US, Mexico, and Canada are making significant progress in the NAFTA talks. The Canadian dollar began the year on a weak note, mainly because of issues related to the NAFTA agreement. So, the news is considered to be bullish for the Canadian dollar. Additionally, the job data are also indicating an improvement in the economy.

According to Statistics Canada, the economy added 32,300 jobs in March, compared with analysts’ expectations of 20,100, and greater than 15,400 job additions recorded in the earlier month. Notably, the job additions were driven by full-time gains. Furthermore, the unemployment rate stood unchanged at 5.8%, compared with February, and in line with analysts’ expectations. The job additions continue to remain on an upward trend since the second half of 2016. On a y-o-y basis, total employment rose by 1.6% or 296,000.  The greenback, on the contrary, suffers from weak economic data and uncertainty caused due to the Sino-US trade war.

According to the US Bureau of Labor Statistics, the non-farm sector added 103,000 jobs in March and missed analysts’ expectations of 188,000 job additions. During the previous month, the non-farm sector added 326,000 jobs. The increase in employment was mainly driven by health care, mining, and manufacturing sector. Furthermore, according to the Household Survey Data, the unemployment rate stood unchanged at 4.1% in March, compared with the previous month. Economists were expecting the unemployment rate to decrease to 4.0%. It is the sixth consecutive month unemployment remains unchanged. The number of unemployed people in the US is about 6.60 million.

A Reuters survey of analysts revealed that the outlook for the greenback is bearish due to reasons unrelated to the US-China trade war. Almost 30 of 55 strategists said their outlook on the greenback’s performance has not changed a bit due to the trade war between the US and China. Almost 16 respondents believe the greenback would weaken further due to the trade war.  Analysts believe the US dollar would break out of the bearish trend only if the economy stays stronger for a longer period than anticipated or the trade deficit narrows significantly. So, fundamentals favor a continuation of the USDCAD pair’s decline.

As shown in the chart below, the USDCAD pair has formed a head and shoulder pattern on the chart. The neckline, which acts as support, is also broken. So, we can expect the currency pair to undergo a deeper decline. The money flow index reading has fallen below 50. So, we can expect the USDCAD pair to move down further.

USDCAD - Technical Analysis - 10th April 2018

A short position near 1.2720, with a stop loss order above 1.2800, seems to be the most ideal trade at this point in time. Once the currency pair starts moving downwards, we would place a buy order near 1.2540 to cover the short position.

Additionally, we may also park our surplus funds on a put option contract. However, to do so, we require the contract to be valid until April 18th. Furthermore, the USDCAD pair should be trading near 1.2720 in the Forex market.

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.

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