USD/CAD: faceless Nonfarm and the growth of the Canadian labor market

Trading 06 sept 2019 Donner votre avis

Traders were not impressed by American Nonfarm. After some hesitation, investors still decided that "the glass is half empty" than vice versa, after which they began to gradually get rid of the US dollar. However, this process was uneven: if the pair EUR/USD, GBP/USD, USD/JPY remained in place, showing only impulsive, but extremely short-term price "delays", then the pair USD/CAD went down to the bottom, breaking the resistance level of 1.3200 (the lower line of the Bollinger Bands indicator on D1), trying to finally gain a foothold in the framework of the 31st figure. Such a violent reaction is also due to the release of "Canadian Nonfarms." However, first things first.

Data on the US labor market largely fell short of forecast values. The number of people employed in the non-agricultural sector increased by 130 thousand with a growth forecast of 160 thousand. The indicator has been declining for the second consecutive month: the worst situation was only at the beginning of this year when Nonfarm twice fell below the level of one hundred thousandths (February and May). The increase in the number of people employed in the private sector of the economy has also slowed down for the second month in a row, as has an increase in the number of people employed in the manufacturing sector of the economy. All these indicators came out in the "red zone", not meeting the expectations of most analysts.

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The unemployment rate remained at the same level (3.7%), but this indicator is a lagging economic indicator, so today's figures did not have any effect on traders. The only undeniable advantage of today's release is salaries. The average hourly wage level increased both on a monthly and an annual basis, while experts expected a decline in this indicator. This fact restrained the downward dynamics of the US currency in many dollar pairs. Also, traders are waiting for the speech of the head of the Fed Jerome Powell, who will announce at 17:30 (London time) in Switzerland his speech on the prospects of monetary policy. He can focus on the negative consequences of the global trade conflict, leaving macroeconomic reports "out of the blue". In this case, the greenback will increase its dive.

Returning to the American Nonfarm, it is worth noting that we can talk about certain "alarm bells". So, according to most experts, while the American economy creates 200,000+ jobs per month, there is no need to worry about the labor market. Two hundred thousand is a well-established "health indicator", which is used by experts, traders and the Fed. Analysts have repeatedly voiced this figure in the context of assessing the state of the American labor market. Therefore, a significant deviation from this target has a very significant impact on the market.

The last time Nonfarm crossed the 200th line in April (and before that – only in January). The downward trend of this indicator may alert members of the US regulator, many of which have softened their position recently. Now the fate of the interest rate is at stake, therefore, the contradictory dynamics of Nonfarm are considered primarily through the prism of the Fed's monetary policy prospects. There are growing fears in the market that the Fed will resort to aggressive monetary easing measures, and dollar bulls were in dire need of strong labor market data today. But the published release can be called very mediocre, so the intrigue of the September meeting remains.

But the Canadian dollar has "survived" the September meeting of the Central Bank of Canada while strengthening more than 150 points. Stephen Poloz, contrary to numerous rumors, did not announce the interest rate cut, and indeed left this question in the air, in fact: according to him, everything will depend on the dynamics of the trade war, as well as on the incoming data. And if the prospects for resolving the global conflict look vague (the parties agreed only on a high-level meeting in October), the incoming Canadian data continue to please the bulls of the USD/CAD pair.

For example, the growth of the Canadian economy came out in the "green zone", exceeding the forecast values. In particular, GDP for the quarter grew by 3.7% year-on-year (with growth forecast to 3%) – this is the best result since the second quarter of 2017. Before that, inflation indicators were published, which also showed good growth. The data published today on the growth of the labor market in Canada only added to the positive picture. The unemployment rate remained at the same level (5.7%), and the number of employed jumped by 80 thousand, with the forecast growth of only 18 thousand. Although these dynamics were mainly due to the increase in underemployment, this fact did not bother traders. The published figures suggest that the Canadian Central Bank can continue to maintain a wait-and-see attitude against the background of the "dovish" intentions of the Federal Reserve.

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Thus, if Jerome Powell does not encourage dollar bulls with his rhetoric today (which is unlikely), the USD/CAD pair will retain the potential for further decline. After overcoming the support level of 1.3160 (the lower limit of the Kumo cloud on D1), the price will move to the next support level – 1.3090, which also corresponds to the lower limit of the Kumo cloud, but on the weekly chart.

The material has been provided by InstaForex Company - www.instaforex.com

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