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FX Week Ahead: November Canada Jobs Report & USD/CAD Rate Forecast

FX Week Ahead: November Canada Jobs Report & USD/CAD Rate Forecast

Christopher Vecchio, CFA, Senior Strategist
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November Canada Jobs Data Overview:

  • The November Canada employment change and unemployment rate are due out on Friday, December 4, at 13:30 GMT.
  • USD/CAD rates have just fallen to fresh yearly lows, and in the process may be setting up a test of a key longer-term Fibonacci retracement in the coming sessions.
  • Retail tradersare less net-long USD/CAD than yesterday and compared with last week.

12/04 FRIDAY | 13:30 GMT | CAD EMPLOYMENT CHANGE & UNEMPLOYMENT RATE (NOV)

Following a strong reading of +83.6K in October, the Canadian labor market is looking for a modest expansion in November. Bloomberg News consensus forecasts call for the November Canada jobs report to show that the economy added +20K jobs. Even so, the six- and 12-month rates of jobs growth are +394.8K and -49.9K, respectively. The unemployment rate is due to stay on hold at 8.9% after falling for five consecutive months.

The labor market gains in October were the sixth consecutive month of gains following back-to-back historic losses in March (-1.01M) and in April (-1.994M). Given that crude oil prices rebounded over the past several months, coupled with significant improvement in Canadian PMI readings, there are reasons to believe that the Canadian economy is growing at a very healthy clip as it seeks to recover from the coronavirus pandemic.

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BANK OF CANADA INTEREST RATE EXPECTATIONS (DECEMBER 3, 2020) (TABLE 1)

FX Week Ahead: November Canada Jobs Report & USD/CAD Rate Forecast

Given the narrative of an expanding Canadian economy, interest rate cut expectations have evaporated thanks in part to the clear forward guidance offered by BOC Governor Tiff Macklem. Four months ago, in mid-August, there was a 17% chance of a 25-bps rate cut by December 2020. Now, there is a 0% chance for December 2020, an expectation that carries through September 2021.

Pair to Watch: USD/CAD

USD/CAD RATE TECHNICAL ANALYSIS: DAILY CHART (December2019 to December 2020) (CHART 1)

FX Week Ahead: November Canada Jobs Report & USD/CAD Rate Forecast

In our last update it was noted that, “USD/CAD rates continue to flirt with a break below the trendline from the 2016 and 2019 highsIn context of the move lower from the March 2020 high, it appears that USD/CAD rates are consolidating in a bear flag continuation pattern that would ultimately produce new yearly lows for the pair in the remaining six+ weeks of 2020.” Indeed, at the time of writing, USD/CAD was in the process of setting fresh yearly lows on the session.

Now that the fresh yearly lows have emerged, USD/CAD rates may be biased to continue lower towards a longer-term Fibonacci retracement: the 38.2% retracement from the 2012 low to 2016 high at 1.2758. USD/CAD rates continue to trade below their daily 5, 8-, 13-, and 21-EMA envelope, which is in bearish sequential order. Daily MACD is trending below its signal line, while Slow Stochastics are nestled in oversold territory.

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IG Client Sentiment Index: USD/CAD RATE Forecast (December 2, 2020) (Chart 2)

FX Week Ahead: November Canada Jobs Report & USD/CAD Rate Forecast

USD/CAD: Retail trader data shows 71.59% of traders are net-long with the ratio of traders long to short at 2.52 to 1. The number of traders net-long is 0.23% higher than yesterday and 2.12% lower from last week, while the number of traders net-short is 4.82% higher than yesterday and 22.97% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.

Yet traders are less net-long than yesterday and compared with last week. Recent changes in sentiment warn that the current USD/CAD price trend may soon reverse higher despite the fact traders remain net-long.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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