Fundamental Overview
The USD got another boost on Friday following the NFP report as the data beat expectations by a big margin almost across the board. The market scaled back the rate cuts expectations further with now just one cut expected by the end of the year.
The focus remains on inflation and this week we get the US CPI report on Wednesday. This is the most important event of the month. Another hot report will likely cause some trouble in the markets with the stock market looking as the most vulnerable right now.
The best outcome would be a soft report given the overstretched moves in the markets caused by the repricing in rate cuts expectations. That would likely reverse most of the recent trends and trigger a rally in bonds, risk assets like stocks and bitcoin and lead to a selloff in the US Dollar.
On the CAD side, the BoC cut interest rates by 50 bps at the last policy meeting but dropped the line saying “if the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further", which suggests that we reached the peak in "dovishness" and the central bank will now switch to 25 bps cuts and will slow the pace of easing.
The Canadian Employment report on Friday beat expectations across the board by a big margin. That and the NFP report made the market to scale back rate cuts expectations from 67 bps of easing by year end to 41 bps. There’s now just a 57% probability of a rate cut at the upcoming meeting.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD recently broke out of the recent range to the downside but eventually erased the entire move lower and it’s now trading back near the top of the range. From a risk management perspective, the buyers will have a better risk to reward setup around the trendline to position for new highs. The sellers, on the other hand, will want to see the price breaking lower to regain control and start targeting new lows.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that overall the pair has been ranging between the 1.4340 support and the 1.4460 resistance since the FOMC decision. The buyers will want to see the price breaking higher to increase the bullish bets into new highs, while the sellers will likely step in around the resistance to position for the pullback into the trendline.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor upward trendline defining the current bullish momentum on this timeframe. The buyers will likely lean on the trendline to position for a break above the resistance and new highs. The sellers, on the other hand, will look for a break below the trendline to target a drop into the major trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow, we get the US PPI data. On Wednesday, we have the US CPI report. On Thursday, we get the latest US Jobless Claims figures.
