The miss in the US CPI report led to a sizeable depreciation in the US Dollar as the market cheered the lower core inflation readings and expected the Fed to be done soon with its tightening cycle. In fact, the market priced out the chances of more than one rate hike but kept the July increase as a done deal. This may be due to the tight labour market, as we have also seen with the US Jobless Claims yesterday, and the lack of hints to a skip or pause from the Fed speakers after the CPI release.
The BoC, on the other hand, hiked rates by 25 bps as expected as the inflation rate continues to be high, especially the underlying inflation, and the jobs market remains tight. 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.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that after the first fakeout below the key 1.3225 support level, the price has broken lower again following the miss in the US CPI report and the rate hike by the BoC. The 1.30 handle is now in sight and the sellers don’t have strong barriers until then. The moving averages have again crossed to the downside as the downtrend resumed.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the correction after the fakeout ended at the 50% Fibonacci retracement level near the 1.34 handle. Since then, the price has started to trend lower as the US NFP missed expectations and then broke below the bearish flag pattern to eventually sell off after the miss in the US CPI report.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a good resistance zone near the 1.3135 level where we have the confluence of the 38.2% Fibonacci retracement level, the moving average and the trendline. The sellers are likely to step in here with a defined risk above the trendline and target the 1.30 handle. The buyers, on the other hand, will want to see the price breaking higher to pile in and target the 1.3225 resistance.
Upcoming Events
Today we have the University of Michigan Consumer Sentiment report. The market is likely to move only if there are big deviations from the expected figures and it’s likely to be particularly focused on the inflation expectations data.
See also the video below: