USD/CAD licks employment data-led wounds near 1.2850 on sluggish oil, indecisive markets

• USD/CAD struggles for clear direction after two-day downtrend.
• US, Canada flashed mixed signals over December employment scenario but bears cheered USD weakness.
• Oil prices seesaw even as major supply threats are resolved and demand fears grow.
• Virus woes escalate but Fed hawks stay hopeful ahead of Wednesday’s US inflation.

USD/CAD hovers around 1.2650-45 during the sluggish early hours of Monday, after bears cheered Friday’s jobs report from the US and Canada. In doing so, the loonie pair seems to track prices of Canada’s main export item WTI crude oil amid a light calendar and mixed sentiment.

During the previous day, the pair dropped for the second consecutive day, also the most in a week even as December month jobs report from the US and Canada flashed mixed reports. However, disappointment from the US Nonfarm Payrolls (NFP) gained major attention to drown the US dollar Index (DXY) towards posting the biggest daily loss in six weeks.

That said, the headline US Nonfarm Payrolls (NFP) disappointed markets with 199K figures for December versus 400K forecasts and 249K prior (upwardly revised from 210K). However, the Unemployment Rate dropped to 3.9% compared to 4.1% market consensus and 4.2% in November while the U6 Underemployment Rate that fell to 7.3% against November's downwardly revised 7.7%, both closing in the pre-pandemic levels. As it can be easily observed, the NFP-led disappointment was largely overruled by the Unemployment Rate and U6 Underemployment Rate, which in turn seems to challenge the market sentiment of late.

On the other hand, Canadian Employment Change rose past 27.5K forecast to 54.7K, versus 153.7K prior, whereas the Unemployment Rate fell to 5.9% from 6.0% in November, below expectations for it to remain unchanged.

Elsewhere, WTI crude oil prices remain sidelined at around $78.60 despite receding fears of a supply crunch from Kazakhstan and Libya, not to forget virus-led challenges to energy demand.

Amid these plays, S&P 500 Futures reverse the early Asian losses but stay sluggish. Additionally, Treasury bond moves remain silent as Japanese markets are off for the Coming-of-Age Day.

Looking forward, a lack of major data/events may keep challenging the USD/CAD traders but hawkish bets on the Fed rate hikes will highlight Wednesday’s US Consumer Price Index (CPI) for fresh impulse.

Read: Inflation and geopolitics in the week ahead

Technical analysis

Although bearish MACD signals join 50-DMA break to keep USD/CAD sellers hopeful, a convergence of the 100-DMA and an ascending support line from December 08, around 1.2630-25, restricts short-term losses of the pair.

It’s worth noting, however, that a 12-day-old resistance line near 1.2810, challenges the pair buyers even if they manage to cross the 50-DMA level surrounding 1.2700.