USD/CAD Price Analysis: Breaking lower ahead of NFPs

• USD/CAD has broken below a major trendline and is unfolding lower. 
• Key fundamental data lies ahead with US Nonfarm Payrolls and Canadian Payrolls both coming out at the same time. 
• Unless the fundamental data is substantially bullish for the US Dollar, the downmove will probably extend.

The USD/CAD is down over a tenth of a percent on Friday as traders await the arrival of key employment metrics from both the US and Canada at 13:30 GMT. 

Over the last two and a half days the pair has fallen from 1.3600 to the 1.3430s as traders digested Federal Reserve (Fed) Chairman Jerome Powell’s dovish comments to US lawmakers. Powell said “we’re not far” from inflation falling to a level where it would be right to start cutting rates. Lower rates are negative for a currency as they tend to reduce foreign capital inflows.

The mood music around the Bank of Canada (BoC) meanwhile has been much less dovish after the Boc delivered a hawkish hold at its last policy meeting on Wednesday. 

The technical picture is showing some interesting developments as we head into what will probably be a volatile afternoon. 

USD/CAD is overall looking bearish. It has broken through a key trendline for the 2024 rally and the break coincides with a sell signal from the Moving Average Convergence/ Divergence (MACD) indicator as it crosses below its signal line (circled). The Relative Strength Index (RSI) is also relatively low – a bearish sign. 

US Dollar vs Canadian Dollar: Daily chart

It is possible to see the 2024 price action as forming a Wedge pattern – another potentially bearish motif. Since the trendline has a dual role as the bottom of the Wedge, the trendline break also indicates a breakout from the price pattern. 

The target for the breakdown is equal to the widest part of the Wedge pattern extrapolated lower from the breakout point lower. This gives a target at roughly 1.3350, which is also the level of the January lows. 

A break below that would solidify the reversal and probably see a run down to around the vicinity of the 2023 December lows in the 1.3170s.