Last week, the US CPI came basically in line with expectations, but the good news is that the Core M/M reading once again printed at 0.2%. The less good news is that the US Initial Claims spiked higher, but Continuing Claims remained solid. We have already seen Claims spiking higher in the past months, so it shouldn’t be worrying yet. The long-term inflation expectations in the University of Michigan report ticked lower, so on the data side the soft-landing narrative was supported. The US Dollar, nonetheless, appreciated across the board as the attention may have turned already on the next data given the higher energy prices and China starting to stimulate more.
On the other hand, the BoC hiked rates by 25 bps as expected at the last meeting as the central bank doesn’t like the persistently high underlying inflation with a tight labour market. In the recently released Meeting Minutes the BoC seems less in a rush to hike rates again. The recent Canadian underlying inflation data beat expectations on all measures, and while the unemployment rate increased once again, the average hourly earnings surprised to the upside. Overall, it’s a mixed picture for the BoC but it should be more skewed to the hawkish side.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD is threatening a breakout of a key trendline. In fact, a breakout should open the door for much higher levels with the first one standing at 1.3553. The sellers should step in here with a defined risk above the high to target the 1.3225 support again. The bias remains bullish but the risk of a pullback after such a big rally is high.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the buyers keep on leaning on the red 21 moving average as a dynamic support. We are likely to see more coming in here and target the break above the recent high at 1.3500. In fact, the sellers will need the price to fall below the 1.3400 handle to have more conviction and target the 1.33 handle.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the price action and how the buyers remain in control. The levels to watch are the high at 1.35 and the black trendline as a break below it would see more sellers piling in, given the fakeout, and target the 1.33 handle.
Upcoming Events
This week is a bit empty on the data front. Today we will see the latest US Retail Sales report where the USD is likely to appreciate in case of a beat and pull back in case of a miss. At the same time, we will also see the Canadian CPI report where a miss should support the BoC pause, and a beat may make them uncomfortable holding rates steady. The US Jobless Claims on Thursday is likely to be the main event of the week as another big miss may cause recessionary fears and send the market into risk off, while strong data should keep the USD strong as any dovish bet should be put aside.