Friday’s Canada employment report lit a fire under the Loonie. USDCAD dropped from 1.2510 to 1.2355 on Friday and spent the overnight session consolidating those losses.  If you believe Bank of Canada Governor Stephen Poloz when he say’s that rate hikes will be “guided by incoming data”, a rate hike is likely next week.  A variety of major bank economists are forecasting two or more in 2018.

The case for a couple of rate hikes is strong.  Oil prices have rallied steadily and are comfortably above $40.00/b.  Canadian economic data has been firm, economic slack has been mostly absorbed and this and may lead to higher inflation.

Of course, there is a Sword of Damocles hanging over the bullish Loonie forecast, or more accurately the “Donald Detonator”. President Trump has threatened to blow up NAFTA and the last round of negotiations ended with the US playing “hardball.”

BoC Governor Poloz implied that NAFTA concerns were one reason why rates did not rise in December.

The BoC may raise rates next week (about 75% of the market believe that is the case), but the USDCAD price level may determine if it is a hawkish or dovish hike.

The US dollar recouped some losses in an uninspiring overnight session. AUDUSD retreated on profit-taking as did NZDUSD.

USDJPY opened in Asia with a bid and rallied to 113.37 from 113.04 but completely reversed the move in Europe. That move occurred despite Japan being closed for a holiday.

EURUSD firmed in Asia but dropped below 1.2000 in Europe. The latest Commitments of Traders report shows traders added to already extremely long EURUSD positions last week,  which may have weighed on the single currency.

GBPUSD was weighed down by soft House Price data which drove the currency pair from 1.3584 to 1.3524.

Oil prices consolidated Friday’s gains in Asia and extended them in early New York trading..  WTI oil rose from $61.41 to $61.81 and opened in New York at $61.79/b.

There isn’t any data of note from the US or Canada.  However, the Bank of Canada Business Outlook survey is due. It has gained a little more lustre than usual as some analysts believe they will find clues to the BoC’s interest rate intentions in the document.  It is hard to see this survey derailing expectations for a hike next week, after the unemployment report.

USDCAD Technical outlook:

The intraday USDCAD technicals are bearish while prices are below 1.2480 a level with previous support at 1.2440 reverting to resistance.  A break below support at 1.2350 opens the door to further losses and a test of support in the 1.1950-1.200 area.  For today, USDCAD support is at 1.2380, 1.2350 and 1.2310.  Resistance is at 1.2420, 1.2440 and 1.2480

Today’s Range 1.2340-1.2430