USDCAD Price Action Fails to Match Employment Report Expectations

The USDCAD market's response to the recent employment reports from the US and Canada has been puzzling. The reports showed sharply divergent employment pictures, with nonfarm payrolls in the US increasing by 162,000, well above the estimate of 56,000, while Canadian employment fell by 41,700, compared with expectations for a gain of 15,100.

The initial reaction was as expected, with the US dollar rising and the Canadian dollar falling. However, the rally did not last, and the price subsequently reversed lower, nearly erasing the entire post-report gain. This has left traders wondering what to make of the market's behavior in relation to the fundamental news.

When markets behave differently than expected, fundamental traders often search for a new story to explain the move. In this case, some might argue that higher oil prices supported the Canadian dollar because Canada is a major oil producer. However, the US is also a major oil producer, so this relationship does not have the same influence it once had.

The technical picture initially confirmed the fundamentals, with the USDCAD moving higher and breaking above several important technical levels. The price moved back above its 200-day moving average at 1.3835, followed by breaks above the 100-hour moving average at 1.3850 and the 200-hour moving average at 1.38587.

However, the price failed to extend above the 38.2% retracement of the decline from the late-July high, which was near 1.3882 and represented the next important upside target. The inability to break through this level weakened the bullish technical picture, and buyers gradually lost their grip.

The 200-day moving average remains a key technical level, but its role has changed. Initially, it acted as support after the bullish breakout, while now that the price has moved below it, the same moving average becomes resistance. Sellers remain in greater control as long as the price stays below that level.