USD
- The Fed left interest rates unchanged as expected at the last meeting with a shift in the statement that indicated the end of the tightening cycle.
- The Summary of Economic Projections showed a downward revision to Growth and Core PCE in 2024 while the Unemployment Rate was left unchanged. Moreover, the Dot Plot was revised to show three rate cuts in 2024 compared to just two in the last projection.
- Fed Chair Powell didn't push back against the strong dovish pricing and even said that they are focused on not making the mistake of holding rates high for too long.
- The latest US CPI slightly beat expectations but analysts expect the Core PCE to print at 0.2% M/M again following the CPI data.
- The US PPI missed expectations across the board supporting the disinflationary impulse.
- The labour market continues to soften although Initial Claims keep on hovering around cycle lows while Continuing Claims are ranging at a higher level.
- The latest ISM Manufacturing PMI beat expectations, while the ISM Services PMI missed by a big margin.
- The hawkish Fed members have been leaning on a more neutral side lately.
- The market expects the Fed to start cutting rates in March 2024.
CAD
- The BoC kept the interest rate steady at 5.00% as expected at the last meeting with the usual caveat that it’s prepared to raise the policy rate further if needed.
- BoC Governor Macklem recently has been leaning on a more neutral side and even started to talk about rate cuts although he remains uncertain on the timing.
- The latest Canadian CPI beat expectations across the board with the underlying inflation measures remaining elevated, which should give the BoC a reason to wait for more data before considering rate cuts.
- On the labour market side, the latest report missed expectations although wage growth spiked to the highest level since 2021.
- The Canadian PMIs continue to fall further into contraction as the economy keeps on weakening amid restrictive monetary policy.
- The market expects the BoC to start cutting rates in March 2024.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD broke through the key trendline and extended the rally into the 1.35 handle. This breakout opened the door for a move into the swing high resistance around the 1.36 handle. The buyers will look for dip-buying opportunities on the lower timeframes while the sellers will want to see the momentum changing before piling in more aggressively.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have an upward trendline now that will define the current uptrend. From a risk management perspective, the buyers will have a much better risk to reward setup around the trendline where they will also find the red 21 moving average for confluence. The sellers, on the other hand, will want to see the price breaking lower to invalidate the bullish setup and position for a drop into new lows.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another minor trendline that should offer a good support for the buyers with the red 21 moving average for extra confluence. If the price were to break lower, the sellers will pile in and target the major upward trendline around the 1.34 handle.
Upcoming Events
Today, we have the Canadian CPI report on the agenda and later in the day all eyes will be on Fed's Waller as the market will be eager to see if he decides to pushback against the aggressive rate cuts expectations. Tomorrow, we will get the US Retail Sales report while on Thursday we will see the latest US Jobless Claims figures. On Friday, we conclude the week with the Canadian Retail Sales data and the University of Michigan Consumer Sentiment survey.
