The USD weakened across the board yesterday following a notable miss in the US initial claims data as that added some more pressure on the USD with the market weighing the possibility that the labour market could weaken fast enough in the next months to justify more rate cuts than expected. Overall though, the price action has been rangebound this week as the lack of key catalysts and the waiting for the US CPI report kept the market at bay.
The CAD, on the other hand, has been under pressure in the first part of the week maybe due to the sustained weakness in crude oil prices and expectations building for the BoC to cut rates in June, although the employment data today and the Canadian CPI report on May 21st will likely decide if the BoC will wait until July or proceed with a cut already in June.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD bounced from the key support zone around the 1.36 handle where we can also find the confluence with the trendline and the 61.8% Fibonacci retracement level. A break below that support should see the sellers gaining more conviction and increasing the bearish momentum into new lows. The buyers, on the other hand, keep on stepping in around these levels to position for a rally back into the cycle highs around the 1.39 handle.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the upward trendline got breached recently with the sellers piling in to extend the drop into the 1.36 support. From a risk management perspective, the sellers will have a better risk to reward setup around the downward trendline where they will also find the confluence of the 38.2% Fibonacci retracement level and the 1.37 handle.
The buyers, on the other hand, will want to see the price breaking higher to invalidate the bearish setup and position for a rally into the 1.3785 level. The red lines marked on the chart define the average daily range of the pair, which is generally the maximum movement we can get on any given day barring major surprises in the market.
Upcoming Catalysts
Today we conclude the week with the Canadian labour market report and the US University of Michigan consumer sentiment survey. Weak figures across the board for the Canadian jobs data should raise the probabilities for a rate cut in June, although there’s not much more to price in. In fact, the next big event to watch will be the US CPI next Wednesday as that will likely have a much bigger and lasting impact on the pair.
