USD/CAD, USD/JPY, GBP/USD: Key levels heading into NFP

As noted in yesterday’s report, we can likely look beyond any positivity from this week’s ADP figures, given it correctly predicts the month-over-month direction of NFP job growth less than a flip of a coin. With that said, forecasters have generally been too gloomy on the headline NFP figure roughly two-thirds of the time since the pandemic, a figure which has also held true over the past 12 months. So that should perhaps be factored in with the 154k forecast for NFP today, on the back of a print in excess of 200k last month.

While a strong set of NFP numbers will likely see the US dollar bid, I’d expect the downside to be greater on soft figures. I just don’t see that as being likely myself.

As you’d expect, volatility has been contained ahead of NFP, but implied volatility has blown out. The 1-day IV for USD/JPY is nearly twice its 10-day average, with GBP/USD and EUR/USD around 50% more than usual.

See related analysis:

• So how good is APD at predicting NFP, anyway?
• GBP/JPY bears ride the wave of divergent BOE, BOJ policy expectations

USD/CAD technical analysis

It has been quite a turbulent week for the Canadian dollar, with USD/CAD bursting to a 22-year high on Monday on Trump’s tariffs, before the ’30-day pause’ saw it reverse sharply lower to mark its most volatile day since the pandemic. Now trading just off its weekly lows, a bearish outside week is all but assured. The question is whether we’ll see a small bounce into the weekend (strong NFP, weak CA jobs) or it will continue lower to make it a larger outside week.  

The 4-hour chart shows the severity of Monday’s reversal, which likely means bounces to the upside are likely to be capped. I doubt, for example, it could make its way – let alone – break above the March 2020 daily-close high around 1.45. but if it tries, bears are waiting to fade into any such move. Note the high-volume node (HVN) at 1.4386 which could act as resistance and mark the end of a 3-wave bounce before bearish momentum returns.

USD/JPY technical analysis

We’ve seen a -5% decline on USD/JPY since its false breakout at the January high, and around half of those declines have arrived this week. Prospects of a BOJ hike amid tariff headlines has seen the yen outperform against all FX majors, and the mighty US dollar has been no exception.

Yet the daily RSI (2) reached its most oversold level of the year on Thursday, and a bullish divergence has formed within the oversold zone on the 4-hour chart. Prices are also trying to hold above the weekly S3 pivot, a level which is only tested during volatile weeks. So, if we are treated to yet more robust NFP figures, USD/JPY could be due a bounce heading into the weekend. Note the HVN ~152.30 that could act as both a magnet and as resistance should we be treated to a counter trend move, but at this stage the fundamentals favour a move down to 150 after any such bounce.

GBP/USD technical analysis

The British pound has struggled to regain 1.25 since its breakdown on Jan 2. We have not seen three false breaks above it, before Thursday’s bearish engulfing day thanks to a dovish BOE cut saw momentum turn beneath it once more. The bias is to now fade into minor rallies in anticipation of its next leg lower.

The 1-hour chart shows a potential bull flag, but as it has not formed in an uptrend then I will treat any upside breakout of it with suspicion. Especially if we see evidence of a swing high around 1.2460.

Bears could seek to target the 1.226 swing low and 1.2311 HVN while prices remains below 1.25.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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