After surging to 1.0026, its highest level since late October, the March Canadian Dollar is taking a two-day breather. The trading activity may be related to uncertainty regarding the outcome of the European Union/Greece debt negotiations, but it is most likely linked to this morning’s U.S. Non-Farm Payrolls report.
Technically, the main trend is up with no threat of a change in trend to down although there is room for a sizable correction. Based on the short-term range of .9711 to 1.0026, the nearest 50 percent to 61.8 retracement zone is identified as .9868 to .9831. This is the next possible downside target should the U.S. jobs number prove to be bullish for the Greenback.
This morning, the Canadian Dollar is currently straddling an uptrending Gann angle at .9966. This angle should act as a pivot price. The old top from December comes in at .9923. This may be minor support as old tops tend to become new bottoms. Another uptrending angle from the .9675 bottom is at .9865 today. This angle is not likely to be tested today unless there is an extremely volatile break. For the record, this Gann angle combined with the 50 percent level form a possible support cluster at .9868 to .9865.
On the upside, taking out the recent high at 1.0026 could launch another move to the upside with the October 27, 2011 level top at 1.0075 the next target. The uptrending angle at .9966 today should serve as a guide.
Like most higher-yielding currencies, the March Canadian Dollar is enjoying the benefit of the “risk-on” trading scenario. The recent surge to the upside is directly related to its favorable interest rate differential. With the U.S. Federal Reserve recently saying interest rates would remain at ultra-low levels until late 2014, investors flocked to the higher-yielding Canadian Dollar, sending it to multi-month highs. As long as liquidity is free-flowing, sentiment should favor the Canadian Dollar over the U.S. Dollar.
If financial conditions in Europe turn bad and this fresh liquidity is used to put out fires rather than encourage growth then sentiment may shift back to a “risk-off” scenario. This would lead to a liquidation break in the Canadian Dollar.
Although this morning’s Canadian jobs data showed employers added fewer jobs last month than economists forecast and the unemployment rate unexpectedly increased, the Canadian Dollar’s strength is likely to be related to the U.S. Dollar’s weakness.