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Strong Jobs Report Keeps Fed Hike in Play

Published August 8, 2016
  • Overnight market action has been positive across risk markets with Asian and European indices enjoying gains and US markets set to open higher following Friday's record closing high for the S&P500
  • Positive sentiment is being driven by Friday's excellent labour data from the US which showed a healthy gain of 255K jobs in July with most industry sectors posting increases
  • Furthermore, the participation rate ticked up slightly in a sign that more people are returning to the market and looking for jobs
  • The data should keep expectations of a Fed rate hike in play for the remainder of the year and this will likely continue to drive US dollar strength on a broad basis
  • Canada was hit with a double shot of poor data as the economy shed -35K jobs in July and the June trade deficit widened to a record reflecting very real and pronounced challenges ahead
  • The data from Canada are alarming and may require the Bank of Canada to shift to a more dovish tone from their recent neutral stance which could cause another drop in the Loonie
  • Oil prices got a bit of a boost earlier this morning on headlines out of the middle east that OPEC is once again reviving talks on an output freeze to offset consistent oversupply
  • WTI front month prices popped 1.8% on the news which gave CAD a slight boost as well to recover from Friday's lows
  • However, the enthusiasm from the headlines is unlikely to last as the comments are attributed to smaller producers such as Venezuela, Ecuador and Kuwait – key OPEC members (think Saudi Arabia, Iraq, and Iran) have been persistent in their battle for market share, ramping up exports and lowering official selling prices in order to cull higher cost producers
  • The only major data from Canada this week are housing starts on Tuesday, while the US delivers a slew of releases highlighted by Q2 labour costs on Tuesday, jobless claims Thursday and retail sales and consumer confidence on Friday
  • Bias for USDCAD is to the upside this week; spot is comfortably in the mid 1.3100's this morning and the next major target to the topside is the 200 DMA at 1.3312

– JP Dore

Charts:  USDCAD remains in uptrend, key resistance at the 200 DMA of 1.3312 is the next major target.