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Federal Reserve Leaves Interest Rates Unchanged, Maintains Monthly Asset Purchases

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  • Fed's Powell: - We are not looking at raising rates, but instead asset purchases - Ideally you would not be raising rates before tapering
  • @CVecchioFX @RiskReversal @GuyAdami Gold is headed back to the bar for another bender #LowerForLonger
  • Fed's Powell: - Move in yields not pinned on one single factor - Technical factors, movements in real yields shifting bond market
  • Fed's Powell: - In the near-term, risks to inflation are tilted to the upside - If inflation continues to rise above the Committee's goal, Fed will use its tools to guide inflation lower
  • $USD bearish break, now at LOD next support 92.19-92.26 https://t.co/KE2gP6Q1Xs https://t.co/DmMGL9byme
  • Gold and the US Dollar whipsawing in wake of the Fed statement and press conference hosted by Chair Powell. Statement said the economy has made progress toward its goals, but Powell just expounded on this by saying "we are still a ways away from *substantial* progress on jobs." https://t.co/qVy8rpIn86
  • Fed's Powell: - We are not near a discussion on raising interest rates - Economic recovery remains extremely uneven
  • So, either the Fed announces Taper soon and markets will evaluate that through the risk lens or they will have to push it back because they are troubled by economic issues such as the covid risk they highlighted. Either way, serious dancing to keep risk appetite steady
  • Fed's Powell: - COVID waves have less and less of an economic impact as time goes on - We will monitor Delta variant closely
  • Yesterday on The Macro Setup, @RiskReversal @GuyAdami and I discussed how it was difficult to trust the USD ($DXY) rally ahead of the Fed. Today's price action is validating that notion. Take a watch/listen: https://www.dailyfx.com/forex/technical/article/forex_strategy_corner/2021/07/27/can-you-trust-the-us-dollar-rally-oil-back-on-track-dan-nathan-guy-adami-the-macro-setup.html
Canadian Dollar Outlook: USD/CAD Turns to Canada Jobs Data

Canadian Dollar Outlook: USD/CAD Turns to Canada Jobs Data

Rich Dvorak, Analyst

CANADIAN DOLLAR, JULY CANADA JOBS REPORT & LABOUR FORCE SURVEY

  • USDCAD upward momentum is beginning to show signs of waning headed into the July Canada jobs report due Friday at 12:30 GMT
  • Canadian Dollar overnight implied volatility measures jump as currency traders prepare for high-impact event risk surrounding Canada’s change in employment data release
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As uncertainty rises, typically so does implied volatility. Canadian Dollar currency pairs are reflecting this phenomenon which is to be expected around closely watched economic data releases that tend to move markets – like tomorrow’s labour force survey. In fact, overnight implied volatility measures for USDCAD, EURCAD, CADJPY, AUDCAD and GBPCAD are all well above their 12-month averages headed into the July Canada jobs report.

CANADIAN DOLLAR IMPLIED CURRENCY VOLATILITY & TRADING RANGES – USDCAD, EURCAD, CADJPY, AUDCAD, GBPCAD

Canadian Dollar Implied

Canadian Dollar currency traders are likely placing heavy weight on the headline change in employment figure seeing that it will provide the latest anecdote for the Bank of Canada (BOC) to consider when communicating its next monetary policy update. BOC Senior Deputy Governor Wilkins most recently communicated how the central bank is “paying particular attention to Canadian household spending and the oil sector. Consumption has rebounded and should continue to be supported by a solid labour market.

That said, another robust Canadian jobs report could reinforce the relatively hawkish posturing of the BOC whereas a worse-than-expected data print may send the loonie tumbling – particularly if markets reassess BOC rate cut bets higher.

FOREX ECONOMIC CALENDAR – CAD

Forex Canadian Dollar Economic Data Calendar Chart

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While the net change in employment will likely take the spotlight, there are several other economic indicators that have potential to weigh in on the market’s reaction in addition to the underlying components of the labour force survey which should not be overlooked.

CANADA CHANGE IN EMPLOYMENT – MONTHLY CHART

Canada Change in Employment Historical Monthly Chart

It was stated in the June Canada jobs report that “employment gains have been relatively broad-based across sectors and regions,” adding that job additions were “particularly strong in service industries and outside oil-producing regions.” Also noteworthy is how the prior 2 employment change readings have drifted lower from the blockbuster report in April. Although, net job additions will look to continue its overarching trend higher.

BANK OF CANADA INTEREST RATE CHANGE PROBABILITIES

Bank of Canada Interest Rate Change Probability Chart

According to overnight swaps, rate traders are currently pricing in a 59.3% probability that the Bank of Canada cuts its policy interest rate by the end of the year. This is down slightly from yesterday’s reading of 66.9% but higher than the low on July 31 low of a 24.7% probability of a rate cut priced in.

USDCAD PRICE CHART: DAILY TIME FRAME (MAY 26, 2019 TO AUGUST 08, 2019)

Spot USDCAD price chart technical analysis

Judging by USDCAD overnight implied volatility of 8.23%, spot prices are estimated to trade between 1.3181-1.3295 with a 68% statistical probability. The 1.33 handle, which aligns closely with the upper bound of the 1-standard deviation trading range and the midpoint of spot USDCAD’s leg lower from the end of May to mid-July, could serve as a strong area of technical resistance if the July Canada jobs report disappoints. On the other hand, USDCAD bears will have to push below technical support posed by the 38.2% Fibonacci retracement if the data print is strong before targeting the month-to-date low and lower bound of the options implied trading range around the 1.32 handle.

FOREX TRADING RESOURCES

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-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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