The market reaction to a dismal U.S. jobs figure triggered a kneejerk selloff for the U.S. dollar against its major trading partners. The U.S. economy added only 113,000 jobs in January, significantly lower than the forecast of 185,000, but because of weather related concerns, Wall Street believes this second poor jobs reading will not change the Fed’s mind regarding tapering. In Canada, employment climbed by 29,000, the best reading since September, and a big beat over the projected 19,700 figure. The loonie, the nickname for the Canadian dollar benefited from this labor report as expectations are removed that the Bank of Canada will not have to resort cutting interest rates. Further gains might be on the Canadian dollars way in the short-term, but long term, the U.S. dollar may regain momentum next quarter.
Price action on the weekly chart highlights a bearish Gartley pattern that could be drive a potential major pullback move for USD/CAD. The rise in USD/CAD was approaching overbought levels as price has steadily climbed from the September 2012 low of .9632 to last month’s high of 1.1223. If valid, price may target a pullback towards the 23.6% Fibonacci retracement level of the C to D leg at 1.0847. The next key level of support will come from the 38.2% Fibonacci level at 1.0615, which also coincides with the 100-Day Simple Moving Average. Key resistance will lie at the 1.1125 level.
The trade: Sell USDCAD at 1.1005 with a stop loss at 1.1065 and a take profit at 1.0810. The Risk/Reward Ratio is 1:3
Edward J. Moya
WorldWideMarkets Online Trading