US:
- The Fed hiked by 25 bps as expected and kept everything unchanged at the last meeting.
- Fed Chair Powell reaffirmed their data dependency and kept all the options on the table.
- The US CPI last week came in line with expectations, so the market’s pricing remained roughly the same.
- The labour market displayed signs of softening although it remains fairly solid.
- The other important economic data like the ISM Services PMI, Jobless Claims and Retail Sales all beat expectations recently.
- The Fed members are leaning towards a pause in September and the next decision will still be dictated by the economic data.
- The market doesn’t expect the Fed to hike at the September meeting, but there’s now basically a 50/50 chance of a hike in November.
Canada:
- The BoC left interest rates at 5.00% as expected but remains prepared to raise rates further if needed.
- BoC Governor Macklem delivered a hawkish speech which points to another rate hike if the data remains strong into the next policy meeting.
- The Canadian underlying inflation data beat expectations on all measures for the June readings and recently we got another beat for the July data.
- On the labour market side, the recent report showed another uptick in wage growth and this is something that Governor Macklem said the BoC is watching carefully.
- The market doesn’t expect the BoC to hike again, but we still have lots of data before the next meeting.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that since tapping into the key 1.3668 resistance, the USDCAD pair has been moving lower almost every single day. Given the overstretched levels and the divergence with the MACD right at the resistance, a pullback was to be expected, but the recent break of the higher low at 1.3489 and the crossover of the moving averages brings into question the overall trend.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we had a massive divergence with the MACD since the beginning of August that culminated at the key resistance. The pair is now threatening a break of the higher low at 1.3489 where we can also find the 38.2% Fibonacci retracement level of the entire rally into the 1.3668 resistance. The sellers have been in complete control since the strong Canadian wage growth data and recently leant on the red 21 moving average to position for further downside. Lower than expected inflation figures today might invalidate the breakout and push the pair to the upside again. A break below the Fibonacci level though, should see another selloff into the 1.34 support.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another divergence with the MACD right at the support zone. This might be a signal that we are about to see a turnaround, but the price will need to break above the trendline to confirm a reversal. A break of the trendline should see more buyers piling in and increase the bullish momentum with the 1.3668 resistance being the first target.
Upcoming Events
This week has just a couple of important economic releases with the FOMC rate decision tomorrow being the highlight. Today, we will see the latest Canadian CPI with the market likely focusing more on the core measures since that’s what the BoC is more concerned with. Tomorrow, the Fed is expected to keep rates unchanged, and the market will focus more on the Dot Plot and Fed Chair Powell’s press conference, although he’s likely to repeat that they remain data dependent. Moving on to Thursday, we will see another US Jobless Claims report, while on Friday we conclude the week with the US PMIs data.