Outlook for the Canadian dollar:
Friday's positive employment figures will be viewed as proof that Bank of Canada (BOC) Governor Tiff Macklem is right. The BoC governor maintained throughout the week that he still thinks more rate increases are necessary, despite the recent dip in inflation data. According to Governor Macklem, more needs to be done because inflation won't go away on its own. Price pressures, he said, run the risk of becoming entrenched. The BoC won't fall behind if the US Federal Reserve keeps up its aggressive rising policy, according to Macklem's statements.
It could be worthwhile to keep a watch on whether the oil price increase continues because it could lend more strength to the Canadian Dollar for the coming week.
Since its most recent YTD high around September 30th, USD/CAD has had a 300-plus pip pullback from a technical standpoint (see chart). The price movement on the daily timescale has been, to put it mildly, erratic as we have removed the previous upper low swing point (signifying a change to a bearish structure) before touching the psychological level of 1.3500. Following that, we saw a bullish engulfing daily candle close before continuing, suggesting that the bulls may have regained control.
Taking a broader view, the upside rebound into the YTD highs was aggressive, with the 50 and 100-SMA behind the current price by a significant amount. If price stays below the YTD high, a push much down is still conceivable, with a potential retest of the 50 and 100-SMA. The weekly candle closure on Friday is still crucial because a candle close that resembles a hanging man candlestick suggests potential for further decline in the coming week. Around the 1.3150–1.3300 range, which corresponds with the 78.6% fib level, 50–SMA, and the top of the ascending channel, a number of confluences are still in play.
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