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 PCE missed expectations across the board with the Core 6-month annualised rate falling below the Fed’s target at 1.9%.
- The labour market has been softening via less job opportunities rather than more layoffs with the Initial Claims hovering around cycle lows and Continuing Claims remaining high.
- The latest ISM Manufacturing PMI missed expectations falling further into contraction, while the ISM Services PMI beat forecasts holding on in expansion.
- The market expects the Fed to start cutting rates in Q1 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 beat expectations although the unemployment rate ticked higher again.
- 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 Q2 2024.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD bounced on the 1.32 handle and started to correct higher after an aggressive selloff in the past few weeks. We can see that we have a good resistance zone around the 1.3382 level where we can also find the confluence with the 50% Fibonacci retracement level and the red 21 moving average. This is where we can expect the sellers to step in again to target a new low.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the latest leg lower diverged with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the target for the pullback should come right around the resistance zone where we can expect the sellers to start piling in. If the price breaks above the resistance zone, the bearish setup would be invalidated, and the buyers will likely increase the bullish bets to start targeting the 1.36 handle.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that from a risk management perspective, late buyers might want to wait for a pullback into the 1.3270 level where we can find the confluence of the recent swing high, the 50% Fibonacci retracement level and the 4-hour 21 moving average.
Upcoming Events
This week is full of key economic data which will culminate with the NFP report on Friday. We begin today with the US ISM Manufacturing PMI and Job Openings and given the recent trends there could be room for disappointment. Later in the day, we will get the release of the FOMC Minutes, but it’s not expected to be market-moving given that it’s three weeks old data. Tomorrow, we will have another slate of US labour market data with the release of the US ADP and Jobless Claims figures. Finally, on Friday, we conclude the week with the Canadian Jobs data, the NFP report and the ISM Services PMI.
