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 NFP report beat expectations although there was more weakness under the hood.
  • 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 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 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 Q2 2024.

USDCAD Technical Analysis – Daily Timeframe

USDCAD Technical Analysis
USDCAD Daily

On the daily chart, we can see that USDCAD rallied all the way back to the key trendline around the 1.34 handle where we can also find the confluence with the red 21 moving average and the 50% Fibonacci retracement level. This is where the sellers are piling in with a defined risk above the trendline to position for a drop into new lows. The buyers, on the other hand, will want to see the price breaking higher to invalidate the bearish setup and position for a rally into the 1.36 handle.

USDCAD Technical Analysis – 4 hour Timeframe

USDCAD Technical Analysis
USDCAD 4 hour

On the 4 hour chart, we can see that the latest leg higher into the trendline diverged with the MACD, which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, it’s another layer of confluence for the sellers and increases the chances of seeing another drop from these levels. If the price breaks below the upward counter-trendline, we can expect the sellers to increase their bearish bets into new lows.

USDCAD Technical Analysis – 1 hour Timeframe

USDCAD Technical Analysis
USDCAD 1 hour

On the 1 hour chart, we can see more closely the current price action with the pair now compressed between the downward and upward trendlines. This gives us a clear setup:

  • A break above the 1.34 handle should lead to a rally into the 1.36 handle next.
  • A break below the downward trendline is likely to trigger a selloff into new lows.

Upcoming Events

This week is basically empty on the data front with the only two notable releases scheduled for Thursday when we will get the US CPI report and the US Jobless Claims figures, and then we conclude the week with the US PPI data on Friday.