Canada's Job Challenges, U.S. Mixed Signals

In December, Canada's job market performance fell short of expectations, with only a net gain of 100 jobs, contrary to the predicted 13,500. The unemployment rate remained at 5.8%, and while job growth has slowed, the average hourly wage for permanent employees increased at its fastest pace in three years, reaching an annual rate of 5.7% in December, up from 5.0% in November. This wage growth exceeds the 4% threshold set by the Bank of Canada (BoC), which could complicate its efforts to curb inflation.

Within the services segment, the wholesale and retail trade sector recorded its third consecutive month of job losses, indicative of a broader economic slowdown. The deterioration of activity in Canada's service sector persisted for the seventh consecutive month in December, influenced by heightened borrowing costs impacting the housing market, as reflected in S&P Global Canada services PMI data.

The S&P Global Canada Composite PMI Output Index, encompassing both manufacturing and service sector activities, reached its lowest point in December since June 2020. Despite an uptick in December, Greater Toronto Area home sales for the year marked the lowest level in over two decades, attributed to high borrowing costs that diminished market affordability, according to data from the Toronto Regional Real Estate Board (TRREB).

Despite the recent economic slowdown, wage growth in Canada has remained robust. The BoC has kept its key policy rate at a 22-year high of 5% since July, evaluating whether these rates are sufficient to bring inflation back to its 2% target. With inflation gradually decreasing and an unexpected contraction in the third-quarter gross domestic product, there is speculation that the BoC might start cutting rates in the first half of 2024. The central bank's next rate announcement is scheduled for January 24, following the release of December inflation data on January 21.

In the United States, the employment landscape presented a mixed picture. The economy added 216,000 jobs in December, surpassing the forecast of 170,000. The unemployment rate remained steady at 3.7%, defying expectations of a rise to 3.8%. Wage growth in the U.S. is above its pre-pandemic average and the range considered consistent with the Federal Reserve's 2% inflation target. Despite these challenges, the U.S. economy avoided a recession in 2023, and the labor market's resilience is expected to support continued growth in 2024.

U.S. factory orders rebounded in November after a decline in October, primarily driven by increased demand for civilian aircraft. However, the Institute for Supply Management's non-manufacturing index fell in December, the lowest since May, reflecting a slowdown in the services sector, which constitutes over two-thirds of the U.S. economy.

While the U.S. dollar initially rallied on positive employment data, it later stabilized after the release of mixed economic indicators. The market is now pricing in expectations of rate cuts by the Federal Reserve in 2024, with attention turning to the consumer inflation report in December for further insights. Analysts suggest that the Federal Reserve may not be in a rush to cut interest rates based on the current job market conditions. Hence, it could result in fluctuations within the upper range for the USD/CAD currency pair, with the US dollar maintaining a slightly stronger trend compared to the Canadian dollar during this timeframe.

Data for Technical Analysis (5H) CFD USD/CAD

Resistance : 1.3365, 1.3370, 1.3378

Support : 1.3351, 1.3346, 1.3338

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 1.3341 - 1.3351 is touched, but the support at 1.3351 cannot be broken, the TP may be set around 1.3369 and the SL around 1.3336, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3365 - 1.3375, TP may be set around 1.3390 and SL around 1.3346, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3365 - 1.3375 is touched, but the resistance 1.3365 cannot be broken, the TP may be set around 1.3349 and the SL around 1.3380, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3341 - 1.3351, TP may be set around 1.3330 and SL around 1.3370, or up to the risk appetite.       

Pivot Points Jan 08, 2024 02:43AM GMT

Sources: Investing 1, Investing 2