SMALL PULLBACK ON USD/CAD?

 On Friday, Canada printed a stronger than expected jobs report for March. During the month, the economy added 42.9K jobs – nearly twice as much as the estimated 21.5K figure – and brought the jobless rate down from 7.0% to 6.9%. The US economy, on the other hand, came up with a weaker than expected NFP reading of 192K versus the 200K consensus and saw no improvement in the jobless rate.

This explains why USD/CAD made a sharp break below the 1.1000 major psychological level last week. This area has acted as support so far this month but was broken due to fundamental factors favoring the Canadian dollar.

A quick pullback might still be in the works, allowing Asian and European session traders to jump in. This pair could retrace until the 1.1000 major psychological resistance, which lines up with Fibonacci retracement levels on the 1-hour time frame and aim for the previous lows around 1.0950.

Shorting at 1.1000 with a tight 25-pip stop and a target of 50 pips could yield a 2:1 return on the trade. There are no major reports due from both the US and Canada today so traders might still take positions based on last week’s NFP sentiment.

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Take note though that Canada also printed a weaker than expected Ivey PMI figure. The report showed a reading of 55.2, down from the previous 57.2, instead of the estimated 58.3 figure. This shows that manufacturing activity expanded slower than expected and slower compared to the previous month in Canada.

However, an expansion is still an expansion. The report still reflects growth in the sector and should be enough to keep production and hiring supported in the near term. Another weaker than expected figure for the current month might force the Canadian dollar to return some of its recent gains though.

There are no major catalysts lined up for Canada for the rest of the week but the US has the FOMC meeting minutes on tap. During this particular monetary policy statement, Yellen was quoted saying that the Fed might start considering hiking rates around six months after stimulus ends. This led to strong dollar buying on the FOMC event but this was later erased when Yellen spoke of continued weakness in the labor sector and the need to keep stimulus going.

Meanwhile, rising oil prices could continue to support the Canadian dollar in the near term, along with the pickup in risk appetite.

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