USD/JPY Eyes May High Amid Growing Bets For December Fed Rate-Hike

The near-term strength in the Canadian dollar may persist over the coming days as the region’s employment report is expected to show the economy adding another 11.3K jobs in June.

A further improvement in labor market dynamics is likely to heighten the appeal of the loonie as it boosts the outlook for growth and encourages the Bank of Canada (BoC) to lift the benchmark interest rate off of the record-low. Recent comments from Governor Stephen Poloz suggest the central bank is more inclined to move away from its easing-cycle as the rate cuts from 2015 ‘have done their job,’ and BoC may gradually alter the monetary policy outlook over the coming months especially as the ‘the Canadian economy’s adjustment to lower oil prices is largely complete.’

With that said, a major shift in market behavior appears to be underway as USD/CAD snaps the upward trend from 2016 and takes out the lows from earlier this year.

USD/CAD Daily

 

Chart – Created Using Trading View

• USD/CAD stands at risk for a further declined as it continues to carve a series of lower-highs, while the Relative Strength Index (RSI) preserves the downward trend from May and trades in oversold territory; another close below the 1.2970 (61.8% retracement) hurdle may open up the next downside target around 1.2890 (161.8% expansion) followed by the Fibonacci overlap around 1.2750 (78.6% retracement) to 1.2770 (38.2% expansion).
• However, the inside-day (harami) formation may point to a round of short-covering, with the dollar-loonie exchange rate at risk of facing range-bound conditions during the major U.S. holiday; need to see the RSI push above 30 and clear the bearish formation to look for a near-term recovery in USD/CAD.