The only significant event risk on Friday will be from the release of the Canadian net employment change. This release is essentially "the other NFP" report, as the data tends to be highly market-moving for the Canadian dollar and rarely meets estimates. Lately, the net employment change has been lackluster and signs are starting to emerge that domestic demand is slowing.

What Are The Markets Facing?

The only significant event risk on Friday will be from the release of the Canadian net employment change. This release is essentially “the other NFP” report, as the data tends to be highly market-moving for the Canadian dollar and rarely meets estimates. Lately, the net employment change has been lackluster and signs are starting to emerge that domestic demand is slowing. Indeed, during the month of February, wholesale sales plunged 1.8 percent while retail sales fell 0.7 percent. Meanwhile, the most recent Ivey PMI report reflected slowing in business activity, as the index eased less-than-expected to 57.6 from 59.0. A breakdown of the index showed prices soaring, and with the Bank of Canada’s core CPI measure still well below their 2 percent target at 1.3 percent, the data suggests that businesses are not passing on these rising costs to customers, which would hurt profit margins. On the other hand, the employment component rose to a five-month high, indicating some potential for strong labor market figures from Statistics Canada. Such a result would spark substantial volatility for the Canadian dollar in the short-term, but nevertheless, with the US economy deteriorating rapidly, the financial markets remaining unstable, and inflation remaining below target, the Bank of Canada is likely to continue cutting rates when they meet again in June.

Bonds – 10-Year Canadian Government Bond Futures

Canadian government bonds tested resistance near 117.90 on Thursday, but were unable to break these levels. The 38.2% Fib of the move from 111.02 – 120.76, along with the 100 SMA continue to hold as solid support. Furthermore, a channel formation has thus far kept price action contained within a range of 117 – 119. A close today above 117.93 would indicate bullish potential for the contract, but given upcoming event risk, CGBs may be more likely to ease lower. Friday’s Canadian employment data is anticipated to reflect a slowing in hiring, but if the news is surprisingly strong, CGBs could plunge as traders cut back speculation for a rate cut by the Bank of Canada in June.

FX – USD/CAD

Friday’s release of the Canadian net employment change is essentially “the other NFP report”, as the data tends to be highly market-moving for the Canadian dollar and rarely meets estimates. However, follow-through during the rest of the day tends to be limited. Indeed, hiring activity is expected to have slowed slightly, but given the pickup in the Ivey PMI employment component, there is some potential for Friday’s report to be surprisingly strong. In this case, USD/CAD could easily fall down toward support at the confluence of the 100 and 200 SMAs at 1.0058/59. On the other hand, domestic demand appears to be waning, suggesting that the net employment change could soften and lead USD/CAD to break above 1.02.

Equities – S&P/TSX Composite Index

The most recent surge in oil and other commodities has propelled the S&P/TSX Composite Index toward the record highs achieved in 2007 at 14,625/46. Will this critical resistance level hold the index back? Friday’s release of Canadian employment data may help determine that, as a surprisingly strong release could restore confidence that the economy can weather the storm of a US recession. Beyond the 14,650 mark, substantial resistance will not come into play until the psychologically important 15,000 level. However, a sharp reversal in oil prices, a return to risk aversion in the market, or a surprisingly disappointing Canadian net employment change could trigger a pullback in the S&P/TSX, with near-term support sitting at 14,500.

Terri Belkas is a Currency Strategist at FXCM.