- USDCAD was up 0.35% as buyers are attempting to recapture the 50 day EMA at 1.3515.
- Risk aversion prevented USDCAD buyers from extending losses towards head and shoulders chart pattern targets at 1.3030.
- Employment data in Canada and the US suggest that the BOC and the Fed have work to do.
The U.S. dollar is making up some ground against the loonie in the North American session after a head and shoulders chart pattern emerged on the daily chart, targeting a drop in USDCAD towards 1.3030. Factors such as the US mid-term elections, which showed Republicans and Democrats splitting Congress, sparked a risk aversion drive. US Treasury yields rose, and the dollar remains in bid across the board. At the time of writing, the USDCAD was trading at 1.3470 after reaching a daily low of 1.3410.
USDCAD trims part of its three-day free fall from around 1.3700
Sentiment remains negative, as US stocks trading at a loss show. As for the data, the US economic docket reported that wholesale inventories rose less than estimated in September. The US Commerce Department revealed that wholesale inventories rose 0.6% month-on-month, below estimates and below September’s reading of 0.8%. In addition, uncertainty surrounding the US mid-term elections prevented traders from opening new bets on risky assets as flows into safe assets increased.
Meanwhile, Fed officials crossed the news wires led by Richmond Fed President Thomas Barkin. Barkin asserted that the Fed’s willingness to fight inflation would cause an economic recession, though he added that the United States is not currently in a recession. He added that the country is at the rear of inflation and that it will begin to decline.
Lack of Canadian economic data has USDCAD traders leaning on last week’s employment numbers. Canada’s October employment change report shattered expectations of just 10,000 new jobs, adding more than 100,000, suggesting that the Bank of Canada (BoC) still has work to do. In the United States, non-farm payrolls exceeded estimates of 200,000, with 261,000, but what caught the attention of investors was that the unemployment rate went from 3.5% in September to 3.7% in October. However, there is speculation that the Fed could slow down its pace of rate hikes.
On the US agenda, the Consumer Price Index (CPI) for October will be published, in addition to data from the Fed. On the Canadian front, the Governor of the Bank of Canada (BOC), Tiff Macklem, will cross the news.
USDCAD Price Analysis: Technical Outlook
The USDCAD daily chart suggests that the head and shoulders chart pattern remains intact, despite the major reaching a high of 1.3494 at the neckline. However, CAD buyers stepped in and dragged USDCAD down to current exchange rates. For USD buyers to invalidate the pattern, they need to reclaim 1.3500 and break above the ‘right shoulder’ around 1.3808; Otherwise, resumption of the downtrend is likely to send USDCAD towards the head and shoulders target at 1.3030.
Source: Fx Street
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