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Summary: Last Friday, Statistics Canada reported that Canada's labor market added 17,500 jobs in October, falling short of the expected 22,500 jobs. The unemployment rate increased to 5.7%, slightly higher than the anticipated 5.6%. With weaker US employment data released simultaneously, the market anticipates that the Fed might halt its monetary policy tightening, putting downward pressure on this asset.

Fundamentals

Despite rapid population growth, Canada's hiring pace is slowing down.

Data released by Statistics Canada last Friday showed a modest increase of 17,500 jobs in Canada's labor force in October, below the expected 22,500 jobs. The unemployment rate increased by 0.2 percentage points to 5.7%, reaching its highest level since January 2022. With the economy cooling down, the job market faces unfavorable factors.

Canada's unemployment rate rising by 0.2 percentage points aligns with the concept of a "stealth recession," indicating that Canada is on the brink of a genuine economic downturn. Strong immigration flows and weak demand are cooling Canada's labor market. This complements recent softer indicators and the still elevated but somewhat improving inflation trend.

Even though inflation pressures in Canada have eased somewhat, Canadians are still feeling the pinch. (The Consumer Price Index has sharply declined from its mid-2022 peak of 8.1% to 3.8% in September.) According to data from Statistics Canada, in October, one in three working-age Canadians had difficulties or extreme difficulties in meeting their economic needs in categories such as transportation, housing, food, and clothing. This percentage was 33.1%, slightly down from the 35.5% in the same period last year but significantly higher than the 20.4% in October 2020.

The slowing employment situation provides further signals to the Bank of Canada that interest rate hikes are helping to rebalance the economy, although wage pressures still raise concerns about the inflation outlook. Canada's job growth in October was mainly driven by part-time employment. Wage growth, as one of the closely monitored indicators by the central bank, continues to outpace Canada's inflation rate. This may prompt the Bank of Canada to stay on hold temporarily and seek a rate cut before the Fed.

Technical Analysis

The USDCAD has continued its descent into the new week after three consecutive trading days of decline. While the asset is expected to further decline after touching a new high in over a year at 1.3899, it may temporarily consolidate before that, as a series of bullish highs and lows remains unchanged.

In this price movement, the momentum indicators appear to favor the current retracement. The relative strength index (RSI) hovers near the midpoint, and the Average Directional Index (ADX) suggests that a bullish trend is not imminent. Meanwhile, the stochastic oscillator has fallen below its moving average and overbought territory, indicating that the current downward trend may persist.

If the bulls can halt the current bearish market, they may attempt to push the asset below the left shoulder at 1.3784. They would then try to break through the 1.3807-1.3854 range. If successful, they may have the opportunity to set another high for 2023.

On the other hand, the bears seem determined to accelerate the current retracement. They may first attempt to continue pushing the asset lower below the 1.3570 level, with the following test of the unfilled demand zone from September 29 (at the 1.3452 level). Any further decline should ideally be restricted above the 1.3371 level. Otherwise, the medium-term wide-ranging consolidation pattern may extend once again.

Overall, USDCAD bears are attempting to reclaim lost ground after a recent strong uptrend but may face consolidation and possible upward movement before further declines. This could form a symmetrical head-and-shoulders structure to set bearish traps for the future. In terms of trading, a buy-on-dips approach is recommended.

Trading Recommendations

Trading Direction: Long

Entry Price: 1.3670

Target Price: 1.3832

Stop Loss: 1.3560

Valid Until: 2023-11-20 23:55:00

Support: 1.3629, 1.3598, 1.3570

Resistance: 1.3702, 1.3732, 1.3784