For a second straight trading day the European markets were taking a day off as the Easter celebration stretched out on both sides of the weekend, but US markets came back to the table today and began the day reacting to the Non-Farm Payroll eyesore we experienced on Friday. However, in the latter half of trade, USD shorts started to get squeezed as the market perhaps began to realize that one NFP report doesn’t dictate central bank policy. A recent example could be the Federal Reserve’s decision to start tapering Quantitative Easing back in December 2013. They mentioned at the time that a continued taper was a deliberate and data driven decision and they would continue unless something drastic changed their mind. Then in January 2014, NFP logged a 74k reading and followed it up with 113k in February 2014; both huge misses.
So did the Fed put the taper on hold? Nope, not even close; they continued to taper away as the low NFP figures were merely transitory, and we then began our recent run of 200k results. The Fed could do something similar this time around as well and indicate that one NFP miss doesn’t ultimately make up their mind as to whether they will raise interest rates or not. Sure, a rate increase in June appears to be seriously dwindling in likelihood, but there’s still a Lloyd Christmas-like chance, fleeting as it may be. The next Fed meeting is on April 29th, not in time for another NFP reading, but they will have access to the weekly Initial Jobless Claims which have been trending stronger of late. If Fed member speeches lean more toward caution in not reading too much in to one result this week, the Dollar may not be done rallying quite yet.
If we were to assume that one NFP miss won’t derail the plans of an interest rate hike in September, the USD has the chance of getting back some of the ground it has lost recently. One pair where that could happen is in the USD/CAD which has been stuck in a 400-ish pip range since January. The USD weakness sent this pair down to the bottom of that range channel and has the potential to rally once again. Working against the CAD in this environment as well is the recent Iranian deal that could create more oil surplus and further depress the price of that commodity. Since Canada is the largest foreign supplier of oil to the US, its currency and economy is heavily reliant upon oil prices. If the fundamental factors work together with the technical in this currency pair, the USD/CAD might be pausing to build momentum for rally back toward the top of the range.
For more intraday analysis and trade ideas, follow me on twitter (@FXexaminer ).