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USD / CAD - Canadian Dollar Gives Back Gains

- Nonfarm payrolls expected to rise 185,000.

- ECB press conference sparks “is it hawkish or dovish” debate.

- US dollar rebounds following ECB and BoE meetings, consolidated overnight.

USDCAD snapshot open 1.3344-48, overnight range 1.3314-1.3373, close 1.3316, WTI $75.80, Gold $1911.99

The Canadian dollar was flaunting its charms and flirting with a potential sharp rally yesterday morning. It didn’t last. A dovish surprise from the Bank of England (BoE) and the European Central Bank (ECB) dovish proved the Canadian dollar to be just a “three dressed up as a nine.”

USDCAD probed support in the 1.3260 area but it proved to be resilient and the subsequent bounce broke minor downtrend resistance at 1.3320 and lifted prices to 1.3373 overnight. The USDCAD price action is almost entirely being driven by external factors. USDCAD direction is highly correlated with S&P 500 index moves. When the S&P 500 rises, USDCAD sinks, and vice versa.

It’s nonfarm payrolls day in America. The consensus forecast is for a gain of 185,000 jobs, the unemployment rate to rise to 3.6% from 3.5% and average hourly earnings for January to be unchanged at 0.3%.

Stronger than expected data will support Powell’s assertion that US rates need to rise further and remain elevated for an extended period. Weak data implies an early end to the Fed’s tightening cycle, when as expected data will satisfy hawkish and dovish narratives.

EURUSD plunged from 1.1030 to 1.0885 after the ECB press conference and is trading near the top of its overnight 1.0832-1.0936 range.

Prices garnered a modicum of support from a flurry of better-than-expected Services and Composite PMI data. Eurozone PPI rose 1.1% m/m in December (forecast -0.4%, November -1.0% m/m)

GBPUSD dropped from 1.2400 during the BoE press conference to 1.2185 just before NY opened today. Traders reacted to BoE hints that they may be close to ending the tightening cycle, supported by the BoE 2-year inflation forecast which is well-below target.

USDJPY is consolidating its post FOMC losses and is at the bottom of the overnight 128.34-128.81 range. The BoJ is expected to start hiking rates in 2023 just as the Fed and other central banks pause and look to cut.

AUDUSD is trading in a 0.7046-0.7080 range. AUDUSD traded defensively due to broad US dollar strength and lower commodity prices while traders ignored better than expected Chinese PMI Services data.

US ISM Services PMI is ahead.