Mixed US dollar data puts Canadian employment on the verge of collapse: who will be the first to "flip the table"?
2026-01-08 19:55:29
On Thursday (January 8), the USD/CAD exchange rate hovered around 1.3870 during the European session. On the daily chart, after falling from a high of 1.4139 to 1.3641, it has recently rebounded and climbed back above 1.3800. In the short term, bulls and bears are repricing within the 1.3800-1.3950 range, with increasingly evident signs of rising volatility driven by events.
The core contradiction in the US dollar market remains the tug-of-war between "data swings" and "interest rate cut pricing." The dollar's repeated fluctuations over the past few days were mainly due to market anticipation of the US non-farm payroll report. This week's US data showed divergence: manufacturing indicators were weak, while service sector indicators were strong, and employment-related job creation and job vacancy data also gave contrasting signals. In terms of pricing, the market is still factoring in approximately 62 basis points of easing this year and believes there is about a 57% probability of a Fed rate cut as early as March. This means that unless subsequent non-farm payroll and inflation data weaken significantly simultaneously, a repricing of "rate cut timing postponed to 2026" is more likely than an immediate realization of a more aggressive easing path. Meanwhile, the policy uncertainty approaching the "announcement date" may also amplify the dollar's event premium in the short term, making the exchange rate more prone to whipsaw movements before the data release.
Pricing in the Canadian dollar is more inclined towards "confirmation." The Bank of Canada kept interest rates unchanged in its last policy meeting but did not confirm market bets on further tightening; its wording remained cautious, emphasizing the weak details in previous GDP and employment data, even while acknowledging some improvements in certain indicators. Regarding inflation, the latest Canadian inflation report showed that the core inflation trimmed average fell to 2.8% year-on-year, 0.1 percentage points lower than market expectations and 0.2 percentage points lower than the previous reading, leading to a dovish repricing of interest rate expectations. Short-term focus shifts to the upcoming Canadian employment data: if employment figures are strong again, the Canadian dollar may receive pro-cyclical support; conversely, if employment weakens, the Canadian dollar is more likely to be pressured by the combination of "central bank caution + falling inflation," thus providing upside potential for the USD/CAD pair.
From the daily candlestick chart, the USD/CAD pair has experienced a technical rebound after a clear downtrend: the high point fell from around 1.4139 and accelerated its decline, reaching a low of 1.3641 before stabilizing and rebounding, currently around 1.3870. Structurally, 1.3800 is the most crucial support level and the dividing line between bullish and bearish sentiment in the near term: after breaking below this level, a period of consolidation ensued, and the current return to this level indicates a temporary weakening of bearish momentum. However, for the rebound to evolve from a "correction" to a "trend reversal," a decisive break above the 1.3950 resistance line and a subsequent retest are needed for confirmation. In the short term, near-term resistance is observed around 1.3887. If the rebound is repeatedly blocked in this area, it is likely to form a range-bound oscillation and pullback; if a breakout with volume occurs and the price holds, then 1.3950 will become the next "price magnet," while a failed breakout may evolve into a false breakout and a pullback to test 1.3800.
In terms of momentum indicators, MACD (26,12,9) shows DIFF at -0.0026 and DEA at -0.0052, while the MACD histogram is 0.0052, presenting a typical repair pattern of "the histogram turning red while the line remains below the zero axis": bullish momentum is recovering, but the medium-term bearish structure has not yet been completely reversed. RSI (14) returned to 57.9079, standing above the 50 center, indicating that short-term bullish market sentiment is dominant but has not yet entered a clearly overbought zone, more like a neutral to strong phase of the rebound continuation. In summary, 1.3800 to 1.3950 constitutes the current core trading range: an upward breakout confirmation is needed, and a downward hold of support is needed, otherwise it will return to the extension path of the downtrend.
Current market sentiment is closer to "pre-event rebalancing" than one-sided betting. Dollar positions tend to converge before non-farm payrolls data releases, leading to a pattern of "contraction before data release, expansion after data release." Meanwhile, while there is a high consensus in the market that the Fed will ease monetary policy this year, there is significant disagreement about "when it will begin," which amplifies sensitivity to individual data points.
Sentiment towards the Canadian dollar is more inclined towards "waiting for employment to provide direction": after the average inflation trimmed year-on-year fell to 2.8%, market expectations for a continued hawkish stance from the Bank of Canada have been lowered. However, if employment continues to be resilient, the Canadian dollar has the potential for a rapid recovery. Therefore, a "tug-of-war" market is more likely in the short term: interest rate differential expectations and risk appetite will alternately dominate, and intraday price action may involve both short-term squeezes and pullbacks.
Bullish Outlook (Favoring a Stronger USD or Weaker Canadian Dollar): If US non-farm payroll and inflation data do not show significant weakness, the market's 57% probability of a rate cut as early as March may be revised downwards, and the pricing of 62 basis points of easing this year may be partially reversed, providing some support for the USD. Coupled with increased safe-haven demand due to policy uncertainty, USD/CAD has a chance to continue its upward trend after stabilizing above 1.3800, first testing 1.3887, and then challenging the 1.3950 resistance level. If 1.3950 is effectively broken and holds after a pullback, the daily chart will be closer to a path of "a downtrend turning into a sideways trend before breaking upwards," significantly enhancing the sustainability of the rebound.
Bearish Outlook (Leaning towards a weaker US dollar or a stronger Canadian dollar): If US non-farm payrolls and subsequent inflation figures are both weak, the market may re-enter the market by betting on easing, even increasing pricing in a faster pace of rate cuts in 2026, putting pressure on the US dollar. Meanwhile, strong Canadian employment data would directly benefit the Canadian dollar and mitigate the drag from the Bank of Canada's cautious stance. Under this combination, if USD/CAD fails to break through 1.3887 and shows consecutive upper shadows or a pullback before reaching 1.3950, the exchange rate is more likely to retrace and test the 1.3800 support level. Once 1.3800 is breached, the short-term rebound may be characterized as a dead cat bounce, and market attention will return to the previous lows, increasing the risk of a continuation of the trend.
Fundamentals
The core contradiction in the US dollar market remains the tug-of-war between "data swings" and "interest rate cut pricing." The dollar's repeated fluctuations over the past few days were mainly due to market anticipation of the US non-farm payroll report. This week's US data showed divergence: manufacturing indicators were weak, while service sector indicators were strong, and employment-related job creation and job vacancy data also gave contrasting signals. In terms of pricing, the market is still factoring in approximately 62 basis points of easing this year and believes there is about a 57% probability of a Fed rate cut as early as March. This means that unless subsequent non-farm payroll and inflation data weaken significantly simultaneously, a repricing of "rate cut timing postponed to 2026" is more likely than an immediate realization of a more aggressive easing path. Meanwhile, the policy uncertainty approaching the "announcement date" may also amplify the dollar's event premium in the short term, making the exchange rate more prone to whipsaw movements before the data release.
Pricing in the Canadian dollar is more inclined towards "confirmation." The Bank of Canada kept interest rates unchanged in its last policy meeting but did not confirm market bets on further tightening; its wording remained cautious, emphasizing the weak details in previous GDP and employment data, even while acknowledging some improvements in certain indicators. Regarding inflation, the latest Canadian inflation report showed that the core inflation trimmed average fell to 2.8% year-on-year, 0.1 percentage points lower than market expectations and 0.2 percentage points lower than the previous reading, leading to a dovish repricing of interest rate expectations. Short-term focus shifts to the upcoming Canadian employment data: if employment figures are strong again, the Canadian dollar may receive pro-cyclical support; conversely, if employment weakens, the Canadian dollar is more likely to be pressured by the combination of "central bank caution + falling inflation," thus providing upside potential for the USD/CAD pair.
Technical aspects:
From the daily candlestick chart, the USD/CAD pair has experienced a technical rebound after a clear downtrend: the high point fell from around 1.4139 and accelerated its decline, reaching a low of 1.3641 before stabilizing and rebounding, currently around 1.3870. Structurally, 1.3800 is the most crucial support level and the dividing line between bullish and bearish sentiment in the near term: after breaking below this level, a period of consolidation ensued, and the current return to this level indicates a temporary weakening of bearish momentum. However, for the rebound to evolve from a "correction" to a "trend reversal," a decisive break above the 1.3950 resistance line and a subsequent retest are needed for confirmation. In the short term, near-term resistance is observed around 1.3887. If the rebound is repeatedly blocked in this area, it is likely to form a range-bound oscillation and pullback; if a breakout with volume occurs and the price holds, then 1.3950 will become the next "price magnet," while a failed breakout may evolve into a false breakout and a pullback to test 1.3800.
In terms of momentum indicators, MACD (26,12,9) shows DIFF at -0.0026 and DEA at -0.0052, while the MACD histogram is 0.0052, presenting a typical repair pattern of "the histogram turning red while the line remains below the zero axis": bullish momentum is recovering, but the medium-term bearish structure has not yet been completely reversed. RSI (14) returned to 57.9079, standing above the 50 center, indicating that short-term bullish market sentiment is dominant but has not yet entered a clearly overbought zone, more like a neutral to strong phase of the rebound continuation. In summary, 1.3800 to 1.3950 constitutes the current core trading range: an upward breakout confirmation is needed, and a downward hold of support is needed, otherwise it will return to the extension path of the downtrend.
Market Sentiment Observation
Current market sentiment is closer to "pre-event rebalancing" than one-sided betting. Dollar positions tend to converge before non-farm payrolls data releases, leading to a pattern of "contraction before data release, expansion after data release." Meanwhile, while there is a high consensus in the market that the Fed will ease monetary policy this year, there is significant disagreement about "when it will begin," which amplifies sensitivity to individual data points.
Sentiment towards the Canadian dollar is more inclined towards "waiting for employment to provide direction": after the average inflation trimmed year-on-year fell to 2.8%, market expectations for a continued hawkish stance from the Bank of Canada have been lowered. However, if employment continues to be resilient, the Canadian dollar has the potential for a rapid recovery. Therefore, a "tug-of-war" market is more likely in the short term: interest rate differential expectations and risk appetite will alternately dominate, and intraday price action may involve both short-term squeezes and pullbacks.
Market Outlook
Bullish Outlook (Favoring a Stronger USD or Weaker Canadian Dollar): If US non-farm payroll and inflation data do not show significant weakness, the market's 57% probability of a rate cut as early as March may be revised downwards, and the pricing of 62 basis points of easing this year may be partially reversed, providing some support for the USD. Coupled with increased safe-haven demand due to policy uncertainty, USD/CAD has a chance to continue its upward trend after stabilizing above 1.3800, first testing 1.3887, and then challenging the 1.3950 resistance level. If 1.3950 is effectively broken and holds after a pullback, the daily chart will be closer to a path of "a downtrend turning into a sideways trend before breaking upwards," significantly enhancing the sustainability of the rebound.
Bearish Outlook (Leaning towards a weaker US dollar or a stronger Canadian dollar): If US non-farm payrolls and subsequent inflation figures are both weak, the market may re-enter the market by betting on easing, even increasing pricing in a faster pace of rate cuts in 2026, putting pressure on the US dollar. Meanwhile, strong Canadian employment data would directly benefit the Canadian dollar and mitigate the drag from the Bank of Canada's cautious stance. Under this combination, if USD/CAD fails to break through 1.3887 and shows consecutive upper shadows or a pullback before reaching 1.3950, the exchange rate is more likely to retrace and test the 1.3800 support level. Once 1.3800 is breached, the short-term rebound may be characterized as a dead cat bounce, and market attention will return to the previous lows, increasing the risk of a continuation of the trend.
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