USD/JPY and USD/CAD Test Key Levels Ahead of the ADP Employment Report

The US dollar is holding on to its recently gained ground following a series of strong macroeconomic releases and a rise in US Treasury yields. Additional support for the greenback comes from resilient inflation readings, expectations that the Federal Reserve will maintain a restrictive policy stance, and cautious investor sentiment ahead of the release of the preliminary ADP employment report. At the same time, market participants continue to monitor oil price dynamics and other economic indicators that could alter perceptions of the health of the US economy.

Despite continued demand for the dollar, the next directional move remains uncertain. Both USD/JPY and USD/CAD have reached important technical resistance levels, where either profit-taking and a local correction may emerge, or a fresh bullish impulse could develop if US labour market data come in stronger than expected.

USD/JPY

USD/JPY continues its upward move and has approached a strategic resistance zone near the highs of recent months. Following the recovery from April lows, buyers have almost fully reversed the previous decline; however, price has now entered an area where selling pressure has previously intensified.

Technical analysis of USD/JPY suggests the possibility of a test of the nearest resistance levels at 160.40–160.70. Should the pair establish itself below the 159.30–159.60 range, a broader downward correction may begin.

Key events for USD/JPY:

• today at 11:30 (GMT+3): speech by Bank of Japan Governor Kazuo Ueda;
• today at 15:15 (GMT+3): US ADP Non-Farm Employment Change;
• today at 16:00 (GMT+3): speech by Federal Reserve Vice Chair for Supervision Michael S. Barr.

USD/CAD

USD/CAD has recovered following a corrective decline towards 1.3770. Technical analysis of USD/CAD points to the possibility of a renewed test of the 1.3850–1.3870 area, as a series of bullish candlestick formations has developed on the daily timeframe. The bullish scenario would come into question if the pair were to establish itself decisively below 1.3770.

Key events for USD/CAD:

• today at 15:30 (GMT+3): Canadian labour productivity data;
• today at 17:00 (GMT+3): US ISM Services Purchasing Managers' Index (PMI);
• today at 17:30 (GMT+3): US crude oil inventories.

Key takeaways

The dollar retains an advantage ahead of the release of preliminary US employment data; however, both USD/JPY and USD/CAD are already trading close to important technical resistance levels. The next directional move will depend on whether the incoming data can confirm the resilience of the US economy. Strong figures could provide the basis for a continuation of dollar strength and a test of fresh highs, while weaker-than-expected results may trigger a correction following the recent appreciation of the US currency.

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