US:
- The Fed left interest rates unchanged as expected at the last meeting.
- The macroeconomic projections were revised higher as the economy showed much stronger resilience than expected and the Dot Plot showed that the majority of members still expects another rate hike by the end of the year with less rate cuts in 2024.
- Fed Chair Powell reaffirmed their data dependency but added that they will proceed carefully as they are trying to find the optimal level of rates. Powell also added that the soft landing is not the base case at the moment, although they are aiming for it.
- The latest US Core PCE came in line with expectations with disinflation continuing steady.
- The labour market displayed signs of softening although it remains fairly solid as seen also with another strong beat in Jobless Claims yesterday and with the beat in Job Openings.
- The ISM Manufacturing PMI beat expectations while the ISM Services PMI came in line with forecasts in another sign that the US economy remains resilient.
- The miss in the ADP report led to some USD weakness which might continue if the NFP data misses forecasts.
- The market doesn’t expect the Fed tohike again at the moment.
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 has been beating expectations month after month and last week we got another beat across the board.
- 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 at the upcoming meeting.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the USDCAD bounced on the key 1.34 support zone and shoot higher as Canadian GDP disappointed and Oil prices tumbled. The pair even broke the key 1.3668 resistance, but this quick rally led to a divergence with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. We might see a pullback into the broken resistance turned support before continuing higher in a classic “break and retest” pattern. If the price continues lower, the next stop should be the trendline around the 1.35 handle.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a good support zone around the 1.3668 level where we can also find the 38.2% Fibonacci retracement level for confluence. That’s where we can expect the buyers to pile in with a defined risk below the support to target the 1.3862 level. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish momentum and position for a drop into the trendline.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price action after the break above the resistance started to diverge with the MACD, which might be a sign that we may indeed see at least a pullback into the support zone.
Upcoming Events
Today it’s all about the NFP report which is the only one the Fed will see before its next rate decision. The US jobs data going into the NFP was strong, so the expectations might be skewed to the upside. At the same time, we will also see the Canadian jobs data with particular focus on wage growth, which is something the BoC highlighted in recent remarks.
