The Canadian dollar is heading into the Labour Day long weekend on the defensive. A combination of better than expected U.S. economic data this week, and a minor equity market meltdown on Wall Street, sparked a robust U.S. dollar rally yesterday. The greenback gave back some of its gains due to a lack of follow-through in Asia and Europe.
Asia equities closed with losses but nothing like what occurred on Wall Street. The jury is still out as to whether the NASDAQ’s 4.96% plunge, the S&P 500’s 3.51% drop, and the Dow Jones Industrial Average 2.78% loss, is the start of a much need correction, or just a speed bump on the road to more record highs. Global equity market price action overnight suggests they are opting for the "speed bump" analogy. European bourses are flitting between positive and negative, and S&P futures are flat.
U.S. non-farm payrolls are expected to show that America regained 1.4 million jobs in August. It seems impressive until you consider that the U.S. lost 22.2 million jobs between February and April, and has only recovered 9.6 million. Today’s results should remind traders that the U.S. still has a long way to got to recover from the pandemic fully.
The story isn’t any different in Canada. The job gain numbers are chunky, but Canada still needs about 1.4 million jobs to bring employment back to pre-pandemic levels.
EUR/USD’s plunge to $1.1790 yesterday from $1.2010 looked like a serious move. The reality is different. If prices remain above the $1.1700-60 level, the uptrend from May is intact. EUR/USD price action may get noisy between NFP release, and the 10:00 am ET option expiry time due to chunky options strikes in the 1.1780-00 and 1.1870-1.1900 area. Traders are still mulling over the risk of very dovish ECB policy statement next week.
GBPUSD bounced erratically in a $1.3257-$1.3318 range, with the bulk of the move occurring during the European session. Fresh Brexit worries may have contributed to the selling. Bank of England policymaker Michael Saunders warned that the BoE’s Brexit forecast might be too optimistic.
The UK Daily Express quoted some government officials warning of just a 30-40% chance for a deal. However, the GBP/USD uptrend line from May is intact while prices are above 1.3180.
Market price action will diminish sharply this afternoon as traders head out early to get a head start on the last long weekend of the summer.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians