ANALYSIS OF USDCAD

• EFFECT OF LAST FRIDAY’S JOB REPORT ON MARKET PARTICIPANTS
• UPCOMING CATALYST 
• TECHNICAL ANALYSIS

USDCAD surged following the release of a positive U.S. jobs report last Friday, breaking above the August high of 1.3647. The robust US employment data reinforced expectations of a resilient US economy, fueling demand for the US dollar and boosting its value across multiple currency pairs where it serves as the base. This move wasn't unique to USDCAD; most currency pairs where the USD is the base currency saw similar upward momentum, reflecting broad based dollar strength. On the other hand, assets quoted against the dollar, such as gold and other USD quoted instruments, experienced declines. The NFP surged to 254k against expected 147k. This is the highest release in the last six months. While the unemployment rate slipped to 4.1%. The domino effect was seen across board.

EFFECT OF LAST FRIDAY’S JOB REPORT ON MARKET PARTICIPANTS 

The report dampened expectations for a sharp reduction in the Fed's benchmark interest rate at its upcoming policy meeting in November. Following the report's release, markets were pricing in only a 6% probability of a 50-basis-point rate cut, compared to a more likely quarter-point cut, according to FedWatch tool.  Prior to the release of the jobs data, markets had estimated a 30% chance of a half point cut in November. At the time of writing, market expectations reflect an 88.2% probability for a 25bps cut, while 11.8% believe the rate will remain unchanged. In the meantime, markets are looking forward to the upcoming October NFP report and other key inflation data to provide further insights ahead of the Fed's November policy meeting. These figures are expected to offer crucial clues regarding the Fed’s potential next steps, helping participants gauge whether additional rate adjustments will be necessary.

UPCOMING CATALYST 

As we progress through the trading week, several key events are likely to drive market movement:

• Later today Wednesday 9th of October at 10 PM GMT+4, the FOMC meeting minutes will be released, where details on the central bank’s recent policy deliberations could provide insights into future rate decisions.
• On Thursday at 4:30 PM GMT+4, inflation data and unemployment claims will be released simultaneously, both of which are critical indicators for the Fed's policy trajectory.
• To close the trading week on Friday, October 11, markets are awaiting the release of Canada employment change and unemployment rate alongside U.S. core PPI, PPI, consumer sentiment, and inflation expectations data. These economic indicators have the potential to drive significant market volatility.

TECHNICAL ANALYSIS

Based on recent economic data, the U.S. dollar gained strength, with the DXY breaking a significant resistance level around 101.891 last Friday. The index reached a high of 102.702 earlier today, marking its highest level in about eight weeks. Looking at USDCAD, we could see a strong bullish momentum since Wednesday 2nd of October. The pair broke August high of 1.3637 on Wednesday the 18th of September, whilst struggling below 1.3674 (acting as a minor resistance). RSI has been on the overbought region since Friday NFP release and technical analyst expects a retracement as the pair prepares to catch its breath in view of next move which is likely dependent of the upcoming catalyst.

            In view of the data releases, if we see a positive reading for USD, technical analyst expects the bullish trend to continue with potential target around 1.3685 and 1.3537. Conversely, a negative US data and a positive CAD report would likely give room for the pair to catch its breath with potential target around 1.3600 physiological level which also coincides with 38.2 level of the Fib, and then 1.3572 being the 50 level and resting on 50 EMA. Room for further break out of these levels aren’t ruled out, same as a mix in data.

Fig. 1 USDCAD H4, Trading View