The miss in the US CPI report last week has led to a broad US Dollar weakness as the market anticipated one last hike at the July FOMC meeting. The falling inflation with a resilient labour market have also strengthened the soft-landing narrative and caused a positive risk sentiment in the markets. This week though, the higher than expected Retail Sales (Control Group) and the much better than expected US Initial Claims gave the USD some support and the weakness after the miss in the CPI was almost completely erased.
On the other hand, the BoC hiked rates by 25 bps as expected as the central bank doesn’t like the persistently high underlying inflation with a tight labour market. In fact, the BoC Governor Macklem said that the Bank of Canada is prepared to raise rates further as if they don’t do enough now, they will likely have to do even more later. The recent Canadian underlying inflation data beat expectations on all measures.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD has been struggling to break through the 1.31 handle and kept on bouncing back into the 1.3225 resistance. We are now consolidating here between the 1.31 support and 1.3225 resistance, so the buyers and sellers will wait for a breakout on either side before stepping in.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the selloff following the miss in the US CPI report got completely erased as the USDCAD rallied back into the 1.3225 resistance after the breakout of the trendline. We are now in a rangebound market, so the best strategy would be to wait for a breakout on either side before considering new positions. Once can also “play the range” though by buying at support and selling at resistance.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor resistance level at 1.3195. We should see a quick move into the 1.3225 resistance if the level gets broken, but the next big move will depend on what happens at the 1.3225 level. In fact, we are likely to find sellers there with a defined risk above the level and target the break of the 1.31 support. If we see the price breaking higher though, the buyers should pile in and extend the rally into the 1.33 resistance.
