May 6, 2021 13:59:27

With today’s weekly US jobless claims falling below 500,000 for the first time since the pandemic began, hopes are high for a headline NFP print of more than one million new jobs. This would be the first time in eight months this has occurred, and while we’ve seen other employment indicators give mixed readings in the run up to tomorrow’s monthly report, the sharp easing of restrictions through April should see a strong reopening effect, particularly in service industries. If the consensus headline figure of 990k jobs added is hit, that still leaves 7.5 million jobs still to be recovered from the crisis. So, we need to get a truly blockbuster figure to move the dollar higher, with disappointment possible with reports of pockets of labour shortages.

USD/CAD to be hit by competing reports

As well as the NFP data, Canada employment numbers are to be released at the same time with analysts forecasting a shedding of jobs. Renewed lockdown measures will result in a transitory hit for last month and likely May, though full employment may be seen by late summer. Of course, tomorrow’s report and this month’s weakness may differ starkly with the NFP number tomorrow.

The underlying trend in USD/CAD is strongly bearish and deeply entrenched on a range of timeframes, though we are oversold. The potential contrast expected tomorrow in the North American job reports may see a bid in the pair, but the dollar’s ability to mount a longer-term correction should be tough going on a technical basis. Fundamentally too, the environment for loonie gains looks constructive with the commodity cycle bullish and economies rebounding.

Today’s move below 1.2250 should eventually open the path to more downside, so any uptick tomorrow could be used as an opportunity to get short. Stops can be placed above Monday’s high at 1.2352 or the previous cycle low at 1.2365, with targets below towards the 1.20s.