Fundamental Overview
Last week, the Fed finally started its easing cycle and decided to do it with a 50 bps cut. The market was already leaning towards a 50 bps move, so it wasn’t a surprise.
The larger cut was framed as kind of a risk management move with the dot plot showing two more 25 bps cuts by the end of the year and less than the market expected in 2025.
The US Dollar didn’t get a boost despite the rise in Treasury yields as the market might be focusing more on global growth expectations. Now that the decision is behind us though, the focus will be on the economic data.
If we start to see an improvement, then Treasury yields will likely continue to rise and lead to a reprising in the dovish expectations potentially supporting the greenback in the short-term.
Conversely, if the data weakens, the market will likely go ahead with expecting more 50 bps cuts by year-end and weighing on the US Dollar.
On the CAD side, the latest soft Canadian CPI raised the probabilities for a 50 bps cut at the upcoming meeting as BoC’s Macklem hinted to a possibility of delivering larger cuts in case growth and inflation were to weaken more than expected. The market sees a 58% probability for such a move.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD probed above the key resistance around the 1.36 handle but eventually got smacked back down. The sellers increase the bearish bets yesterday as we got a breakout on the lower timeframes from a two-week long range.
The target should now be the 1.34 handle. The buyers, on the other hand, will likely step in around the 1.34 handle to position for a rally back into the 1.36 resistance.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see the breakout of the two-week long range yesterday and the increase in the bearish momentum. If we get a pullback, the sellers will likely lean on the trendline to position for the continuation of the downtrend. The buyers, on the other hand, will want to see the price breaking higher to pile in for a rally into the 1.36 resistance.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a strong resistance zone around the 1.3550 level where we can find the confluence of the previous swing low level, the 61.8% Fibonacci retracement level and the trendline.
The sellers will likely pile in there to position for more downside, while the buyers will look for a break to the upside to target a rally into the 1.36 handle. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US Consumer Confidence report. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the Canadian GDP and the US PCE.
