Canadian Unemployment Rate to Dictate Long-Term Direction on CADJPY?
Later today, the highly-anticipated Canadian jobs report is due for release. At 1:30 pm GMT, the report on job growth is expected to show that 24,900 people found work in December. Meanwhile, the Canadian unemployment rate is eyed at 5.8%.
The Canadian Unemployment Rate Surged in November
This is a particularly important report not just for forex traders but also for the Bank of Canada (BOC). Remember that in December, the report sorely missed expectations which were for a 10,000 reading when it printed at -71,200. That meant that instead of people finding jobs, there were significantly more who lost work. This then translated to a 5.9% uptick in the Canadian unemployment rate which was higher than the previous reading and forecast which were both at 5.5%.
Now, everyone wants to see if the reading for November was nothing more than just a fluke. Because if the Canadian unemployment rate for December clocks in higher, it may point at underlying weakness in the economy. Another disappointing report may just force the BOC to ease rates soon. On the other hand, a better-than-expected report would suggest that the Canadian economy remains to be resilient and could keep rate cuts at bay.
On the weekly timeframe, we can see arguments for both a bullish and a bearish bias. The currency pair has made two consecutive lower highs which were followed by higher lows. When you attend our free trading course, you will learn that this is called an inverse head and shoulders pattern. It is often considered as a bullish indicator. The recent price action on CADJPY, trading above neckline resistance at 83.18, may already be considered by some as a sign to go long.
However, be warned that the currency pair still needs to overcome a confluence of resistance around the 84.00 psychological handle. For one, the 100 SMA and 200 SMA are limiting any upward movement on the pair. Additionally, you also have resistance at the falling trend line from connecting the highs of December 31, 2017 and September 29, 2018.
A more conservative way to trade would be to wait for this week’s candle to close. It’s highly possible that a bullish candlestick would close above the trend line resistance and SMAs if data from Canada overshoots forecasts. This would then set 88.58 as the next resistance level where CADJPY hit highs on September 2018.
On the other hand, a disappointing figure could spark a sell-off that may push CADJPY to its November 2019 lows at 81.50.