Fundamental Overview
It looks like the market is taking some breather after an incredible rally in the US Dollar. This week was pretty empty on the data front, and we haven’t got any meaningful catalyst. The main culprit for the US Dollar strength has been the rally in long term Treasury yields.
The yield curve has been bear-flattening which is what you would expect with higher growth and potentially higher inflation expectations. There’s been a good argument that the markets have been already positioning for a Trump victory which is expected to strengthen the higher growth and less rate cuts expectations.
For now, this is the trend and it’s generally a bad idea to fight such trends without a strong catalyst. Unfortunately, we don’t have much left for October as the main events will be in the first weeks of November when we will get the top tier economic reports, the US elections and the FOMC decision.
On the CAD side, the BoC cut interest rates by 50 bps as expected and signalled more rate cuts to come with the size of the cuts being guided by incoming data. The market sees an 85% probability of a 25 bps cut in December (15% for a 50 bps cut) and then three more 25 bps cuts in 2025.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD is testing the key resistance zone around the 1.3860 level. This is where we can expect the sellers to step in with a defined risk above the resistance to position for a drop back into the 1.36 support. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into new highs.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the momentum got weaker around the key resistance as the price action formed a rising wedge right at the resistance. This generally signals a pullback or even a reversal.
In this case, it gives the sellers a bit more confidence to target at least a pullback into the 1.3750 level with a break below the bottom trendline increasing the conviction. The buyers, on the other hand, will likely lean on the bottom trendline to position for a break above the resistance and the top trendline.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more clearly the recent price action with the rejections around the resistance. There’s not much else we can add here, but from a risk management perspective, the buyers will have a better risk to reward setup around the bottom trendline where the sellers will look for a break lower to increase the bearish bets into the 1.3750 level. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the Canadian retail sales data.
