The recent positive surprise in the non-farm payrolls (NFP) data, followed by concerning factors such as a higher unemployment rate and reduced average weekly hours, has had a detrimental impact on the USD. Market sentiment has shifted towards a less optimistic stance, as investors recalibrate their previously hawkish expectations in light of a more relaxed labour market, which has the potential to alleviate inflationary pressures. Moreover, the underperformance in the ISM Services Purchasing Managers' Index (PMI), particularly in the prices paid sub-index, has further reinforced this shift towards a less hawkish outlook. This has ignited hopes that core inflation might experience a decline in the near future.
Regarding jobless claims, the significant deviation observed should be taken with caution, considering the influence of seasonal adjustments. On a positive note, continuing claims have shown even greater improvement, suggesting that individuals are able to secure new employment relatively quickly after being unemployed. Overall, the strong hawkish sentiment witnessed in May, fuelled by robust economic data, has recently started to reverse. This shift is attributed to the expressed preference of Federal Reserve members to maintain the status quo during the upcoming Federal Open Market Committee (FOMC) meeting, as economic data has begun to disappoint.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the USDCAD completed once again the lap rallying into the 1.3664 resistance and falling back into the 1.3300 support. This is where the buyers are likely to start piling in again to target the 1.3664 resistance as “playing the range” has been the strategy since April. A break below the 1.33 support will be significant though and we can expect the sellers starting to target a break below the key 1.3225 level.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that since the surprising BoC rate hike the USDCAD pair hasn’t moved much as the price action became rangebound ahead of the US CPI report today. We are likely to keep ranging here trading into the CPI release, so the best strategy is to wait patiently for the news event as the moves afterwards are likely to be big.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that since breaking the 1.34 level, the USDCAD started to diverge with the MACD and the divergence became even stronger near the 1.33 level. This is generally a sign of weakening momentum often followed by pullbacks or reversals. So, if we pair this technical concept with today’s CPI, we should get a more clearer trading setup. A break above the 1.34 handle should give the buyers conviction to target once again the 1.3664 resistance, while a break below the 1.33 support would give the sellers strength to target the 1.3225 level first and eventually a breakout.
Lots of significant events this week, starting off with the release of the US CPI report today. This report is expected to heavily influence expectations for tomorrow's FOMC rate decision and further out. If the CPI data falls short of expectations across the board, we could witness a selloff in the USDCAD pair. Conversely, if the CPI outperforms predictions on all fronts, we may experience a big rally. The market is likely to place greater emphasis on the Core CPI, making it the most crucial measure to monitor.
Later in the week, we have the Jobless Claims report and the University of Michigan consumer sentiment survey. The previous release of the consumer sentiment survey made quite an impact on the market, particularly due to a significant surge in long-term inflation expectations. Therefore, if this survey disappoints, it would be welcomed news for USDCAD bears.
