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USD/CAD – Shallow or Deep Correction?
The Canadian dollar recovered strongly on the back of Friday’s better than expected labor market report. Job growth came in 3 times stronger than expected at 35K from 10K the previous month. Although the unemployment rate increased, full time jobs increased significantly and participation ticked higher. Taking a look at the charts, USD/CAD appears poised for a deeper correction but we think the losses will be limited to the 20-day SMA near 1.2650. Fundamentally, the central bank has no plans to raise interest rates again and we think BoC Governor Poloz who speaks next week will confirm that. Also while the labor market report was strong, the economy contracted in the month of August according to the GDP report and the trade deficit failed to improve in September after ballooning the previous month. The 20-day and 100-day SMA hover between 1.2620 and 1.2650 with gains capped at the 3 month high of 1.2814.