USDCAD Holds Gains Near 1.3650 as Cool Labor Market Data to Affirm Fed's Caution

Traders' Opinions

Summary:

The US Dollar is edging higher against the Canadian Dollar, stabilizing near 1.3650 as markets consolidate ahead of key US employment data.

BUY USDCAD

Close Time

CLOSED

1.36600

Entry Price

1.39000

1.34800

1.36689 -0.00410 -0.30%

29.0

Pips

Profit

1.34800

1.36890

Exit Price

1.36600

Entry Price

1.39000

The US Dollar is mustering modest but meaningful gains against a commodity-linked Canadian counterpart on Wednesday, with the USD/CAD pair trading near the 1.3650 handle in a session characterized more by positional jockeying than decisive momentum. This incremental advance comes as the greenback digests a turbulent start to the year and braces for a belated, yet critical, reading on the health of the American labor market—a dataset now freighted with extra significance after a brief but disruptive political interlude.

The pair’s trajectory this week tells a story of checked ambition. After an initial push saw it breach the 1.3700 level, the USD/CAD found consistent resistance, prompting a retreat. However, any bearish momentum has been firmly contained above the 1.3625 support zone, suggesting underlying bids are waiting in the wings. This technical stalemate reflects a market in a holding pattern, its gaze fixed squarely on the upcoming release of January’s ADP Employment Change report. The typical mid-week data point has been transformed into a marquee event, its schedule—and the entire week’s economic calendar—upended by the now-resolved two-day partial government shutdown.

As a financial reporter who has tracked these cycles for years, I see this week’s dynamic as a microcosm of the current macro dilemma: resilient but cooling US data against a Federal Reserve determined not to repeat the policy mistakes of the past. The consensus forecast calls for the ADP report to show private-sector employers added 48,000 jobs in January, a slight acceleration from December’s tepid 41,000. To be clear, these figures are not indicative of a labor market in distress, but they are a world away from the monthly average of 186,000 net jobs witnessed in 2024. They paint a picture of an employment engine that has downshifted markedly, settling into a slower, more sustainable rhythm.

This is precisely the kind of environment the Federal Reserve has been preparing the markets for. A labor market that is softening at the edges, without cracking, validates the central bank’s communicated stance of “gradual monetary easing.” In my analysis, data in this ballpark would reinforce the Fed’s cautious, meeting-by-meeting approach and likely push back against more aggressive rate cut expectations still lingering in some corners of the market. Consequently, it should provide a fresh, fundamental prop for the US Dollar, which is already enjoying a mild tailwind from two supportive political developments.

First, the end of the government shutdown has removed an immediate—if minor—source of economic uncertainty and political risk premium. Second, and arguably more impactful for medium-term monetary policy, is President Kevin Warsh’s nomination to chair the Federal Reserve. Markets perceive Warsh as inherently more hawkish than his predecessors, likely to advocate for higher-for-longer interest rates and a more vigilant stance against inflation. His anticipated leadership is being priced in as a structural dollar-positive factor, adding a layer of underlying support that was absent just a quarter ago.

However, writing off the Canadian Dollar would be a mistake. While the USD enjoys broad support, the Loonie is displaying a resilience of its own, drawing strength from a domestic economy that continues to show pockets of surprising vigor. Monday’s S&P Global Manufacturing PMI delivered a potent counter-narrative to last week’s disappointing monthly GDP print. The index showed factory activity expanding at its most robust pace in over a year, suggesting the productive sector of the economy may be finding its footing despite higher borrowing costs.

This creates a fascinating tension for the Bank of Canada (BoC). Governor Tiff Macklem, who is scheduled to speak on Thursday, must now weigh this manufacturing resilience against broader economic softness. His commentary will be finely parsed for clues on the BoC’s divergence path from the Fed. The ultimate near-term arbiter for the CAD, however, will be Canada’s own employment data due on Friday. A strong showing could embolden the BoC to maintain a more restrictive stance relative to the Fed, potentially reigniting the Loonie’s engines and challenging the USD’s ascent.

The current grind higher in USD/CAD is a prelude, not a finale. We are in the calm before the storm of labor data. A confirmed soft-but-stable ADP print will likely solidify the USD’s position, affirming the Fed’s narrative and potentially opening a path for a retest of the weekly highs. Yet, the Loonie, backed by its own positive data and central bank uncertainty, is not going quietly. The pair’s trajectory through Friday will be a direct function of which narrative—American labor resilience or Canadian economic resilience—wins the day. For traders, this sets up a classic data-on-data showdown, where volatility, subdued for now, is almost certain to return.

Technical Analysis

From a technical perspective, USD/CAD is showing signs of a developing bullish reaction from a well-defined demand zone on the daily chart, following a sharp corrective sell-off. Price recently flushed into the 1.3550–1.3600 support region, an area that has repeatedly acted as a strong base throughout mid-2025. The swift rejection from this zone, marked by a long lower wick and immediate rebound, suggests active dip-buying and the presence of institutional demand rather than passive support.

Structurally, USD/CAD remains in a broad ranging environment, bounded by major resistance near 1.4100–1.4150 and key support in the 1.3550–1.3600 region. The latest move appears corrective within that range rather than the start of a new bearish trend. Importantly, price has reclaimed the 1.3650–1.3700 area, which now acts as near-term support and a pivot for short-term direction.

From here, a period of consolidation is likely as the market digests the sharp rebound. As long as price holds above the 1.3600 support band, upside risks dominate. A sustained move higher would bring the 1.3850–1.3900 resistance zone back into focus, an area that has previously capped rallies and aligns with prior supply. A decisive daily close above this region would strengthen the bullish case and open the door toward a retest of 1.4050–1.4150, the upper boundary of the broader range.

Conversely, failure to hold above 1.3600 would weaken the bullish recovery narrative and expose the 1.3450–1.3500 zone, signaling a deeper range rotation rather than a clean reversal.

Overall, price action favors a corrective rebound evolving into a range-driven bullish push, provided demand continues to defend the recent lows.

TRADE RECOMMENDATION

BUY USD/CAD

ENTRY PRICE: 1.3660

STOP LOSS: 1.3480

TAKE PROFIT: 1.3900

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