Impact of US Nonfarm Payrolls on USD/CAD – 04 February 2025

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As we head into Tuesday, February 4, 2025, global markets are poised for heightened volatility, with traders closely monitoring key U.S. economic data and central bank communications. The U.S. dollar remains the central focus following mixed macroeconomic signals, as investors assess the health of the U.S. economy through critical reports such as Factory Orders (Dec) and the JOLTS Job Openings (Dec). These figures will provide valuable insights into business investment trends and labor market conditions, both of which are pivotal for the Federal Reserve’s future monetary policy decisions.

In addition to economic data, speeches from FOMC members Bostic and Daly are expected to draw significant market attention. Their commentary could offer fresh perspectives on the Fed’s rate trajectory, especially as inflation concerns persist and the labor market shows signs of cooling. Meanwhile, the UK will see remarks from BoE Governor Bailey, which could influence the British pound’s direction following recent rate decisions. In Canada, traders are bracing for trade balance figures and oil price fluctuations, both key drivers of the USD/CAD pair.

With multiple high-impact events scheduled, traders should prepare for sharp intraday movements across major currency pairs, particularly USD/JPY, GBP/USD, and USD/CAD. Let’s dive into the technical setups for these key pairs and outline potential trading strategies.

USD/JPY

Technicals in Focus

The USD/JPY pair experienced significant intraday volatility, initially rallying to a high of 155.79 before reversing sharply lower to test support around 154.09. This movement reflects the market’s reaction to shifting risk sentiment and fluctuations in U.S. Treasury yields, which often guide the yen’s performance against the dollar.

  • MACD: Displays a bearish crossover, indicating growing downside momentum.
  • Stochastic Oscillator: Approaching oversold territory, suggesting a potential corrective bounce in the near term.
  • 14-day RSI: Hovering around the neutral zone, reflecting trader indecision and a lack of strong directional bias.

Trading Strategy: Neutral to Sell

  • Sell below: 154.50 with targets at 154.00 and 153.70, stop-loss above 155.00.
  • Buy above: 155.00 with targets at 155.50 and 156.00, stop-loss below 154.50.

GBP/USD

Technicals in Focus

The GBP/USD pair surged sharply from 1.2259 to highs of 1.2463, driven by robust upward momentum following better-than-expected UK PMI data and a weaker U.S. dollar. The pair’s bullish move was also supported by expectations of a more hawkish stance from the Bank of England amid persistent inflationary pressures.

  • MACD: Bullish with widening histograms, indicating strong buying pressure and upward momentum.
  • Stochastic Oscillator: In overbought territory, signaling a potential for a short-term pullback or consolidation.
  • 14-day RSI: Strongly bullish, reflecting the pair’s current uptrend and positive sentiment around the British pound.

Trading Strategy: Neutral to Buy

  • Buy above: 1.2400 with targets at 1.2450 and 1.2500, stop-loss below 1.2350.
  • Sell below: 1.2350 with targets at 1.2300 and 1.2250, stop-loss above 1.2400.

USD/CAD

Technicals in Focus

The USD/CAD pair faced sharp volatility, spiking to 1.4775 before reversing lower towards 1.4392. The pair’s fluctuations were influenced by movements in oil prices—Canada’s key export—and expectations surrounding Canadian trade balance data. Additionally, the U.S. dollar’s mixed performance against its major counterparts contributed to the choppy price action.

  • MACD: Bearish divergence observed, suggesting potential for further downside if momentum weakens.
  • Stochastic Oscillator: Moving towards the oversold region, hinting at a potential corrective rally in the short term.
  • 14-day RSI: Neutral, indicating a period of consolidation as traders await clearer fundamental cues.

Trading Strategy: Neutral to Sell

  • Sell below: 1.4600 with targets at 1.4550 and 1.4500, stop-loss above 1.4650.
  • Buy above: 1.4650 with targets at 1.4700 and 1.4750, stop-loss below 1.4600.

Market Outlook

Looking ahead, the forex market is expected to remain highly sensitive to both economic data releases and central bank commentary. The U.S. Factory Orders (Dec) report will be a key indicator of business investment trends, potentially impacting the dollar’s strength. A weaker-than-expected reading could reinforce concerns about slowing economic growth, leading to further dollar weakness. Conversely, strong data might support the greenback, especially if it suggests resilience in the face of high interest rates.

Another critical release is the JOLTS Job Openings (Dec) report, which provides insights into the U.S. labor market’s health. A decline in job openings could signal cooling demand for labor, potentially easing wage pressures and influencing the Fed’s inflation outlook. This, in turn, could affect expectations around future rate hikes, driving volatility in dollar pairs such as USD/JPY and GBP/USD.

Additionally, speeches from FOMC Members Bostic and Daly will be closely watched for any hints about the Fed’s next moves. Their remarks could sway market sentiment, especially if they suggest a shift in the Fed’s policy stance amid evolving economic conditions.

In Canada, the trade balance report will offer fresh insights into the country’s economic performance, with potential implications for the USD/CAD pair. Meanwhile, developments in oil prices will remain a key driver, given the Canadian economy’s reliance on energy exports.

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