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NFP Friday: Ignore the EURUSD, Watch this Pair Instead

The EURUSD pair is trading sideways as the market prepares for the July 5 Non-Farm Payrolls release and the price is trading more or less bang in the middle of the 1.1105 – 1.1446 range. With the lack of a strong trend and the price not being close to either support or resistance, it will be difficult to formulate a reasonable trading plan.

Instead, I am focusing on Canadian data. The market tends to react less confusing around the release of the data, and we don’t get the same number of random moves.

The Canadian Dollar has been outperforming over the last few weeks as the Canadian labor market improved, inflation remained at a healthy level, and as the Bank of Canada is not ready to turn dovish as its peers. The resilience of the Canadian economy has surprised many, and I don’t think that the Canadian economy will be able to deviate too much from the rest of the world, which looks to head towards lower growth and soft inflation.  However, for now, the economy remains good, and the market is trading the CAD accordingly.

The expectations on the Canadian labor market report is for the economy to have produced 10K new jobs, and for the unemployment rate to have increased to 5.5% from 5.4%.

If the figures beat expectations, the AUDCAD pair might trade much lower. The price has effectively been trapped between 0.91 and 1.0340 since July 2013, but in the last three weeks, it has been trying to leave this range without succeeding. I am not sure if it will make it today, but if the Canadian NFP beat expectations, it might be able to break out.

The benefit of dealing with a multi-year pattern like the rectangle in AUDCAD is that the difference between the minimum and the maximin is approximately 1205 pips, and this is also the potential profit on a breakout from the range. The potential reward makes the pair worth watching. According to the textbook, it is enough for the price to close below 0.91 for the market to trigger this pattern but as it is a multi-year pattern I will wait for a break to the 0.9050 level before turning bearish. And I will probably remain bearish as long as the price does not trade back up above 0.9150, that means the risk-reward ratio os about 12 times the risk if the market indeed slides lower and reaches the target, and even if it does not and reaches halfway the risk-reward ratio will still be impressive.Don’t miss a beat! Follow us on Twitter.