USD/CAD – Rebound running on fumes ahead of Canadian employment data

• US jobless claims no longer trending lower
• Canadian unemployment expected to rise again
• USDCAD running low on momentum near key resistance

The US dollar has performed well recently, buoyed by some strong US economic figures that have forced traders to pare back rate cut expectations.

Markets ended last year expecting 150 basis points of rate cuts from the Federal Reserve this year and despite briefly rising to 175, it’s now pulled back closer to 125. While it’s still likely to fluctuate further before the central bank begins the easing process, that marks a significant shift that has boosted the greenback.

Today’s jobless claims data doesn’t really change things either way. The trend appears to be bottoming but at very low levels and that could remain lower again as it has before.

Canadian employment figures will be the next focal point on Friday. The unemployment rate is expected to rise further in January to 5.9%, up from 5% less than a year ago.

This easing of labor market pressures may have contributed to lower inflation which, despite remaining above the BoC target, is heading in the right direction. BoC Governor Tiff Macklem this week suggested there’s still more to do and markets appear to agree, positioning for a first rate cut in the summer.

Has the correction run out of momentum?

The recovery in USDCAD appears to have run into trouble in recent weeks near 1.3550 where it has repeatedly experienced resistance.

USDCAD Daily

Source – OANDA

This falls around the 50% Fibonacci retracement level and within the 55/89-day simple moving average band. With the MACD now displaying a divergence with the price, it’s possible that what may be a correction has run out of momentum. A move below the end of January lows could further support this.

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