The Fed is waiting for the totality of the data to be released before deciding what to do at their September meeting. As of now, the data supports the soft-landing narrative as the disinflation in the core measures continues but the strength in the labour market and consumer spending might keep inflation higher for longer. This is something that might translate into more rate hikes or a “higher for longer-er” stance. Recently the long-term Treasury yields have been rising non-stop and this has benefited the US Dollar but the reason for such a rally is still unclear.
On the other hand, the BoC hiked rates by 25 bps as expected at the last meeting as the central bank doesn’t like the persistently high underlying inflation with a tight labour market. In the recently released Meeting Minutes the BoC seems less in a rush to hike rates again. The Canadian underlying inflation data beat expectations on all measures for the June readings and this week we got another beat for the July data. On the labour market side, the last report showed that the unemployment rate increased once again, but the average hourly earnings surprised to the upside as well. Overall, it’s a mixed picture for the BoC but it should be more skewed to the hawkish side.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD eventually broke through the key trendline and extended the rally into the 1.3553 resistance. This is where the sellers are likely to step in with a defined risk above the level to target at least a pullback into the 1.34 handle. The buyers, on the other hand, will want to see the price breaking higher to pile in even more aggressively and target the 1.3665 resistance.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we’ve been diverging with the MACD for a while and this is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the price might pull back from the resistance into the black trendline where we will also find the confluence with the red 21 moving average adding further support. That’s where the buyers are likely to pile in with a defined risk below the trendline and target the 1.3665 resistance.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that if we get a pullback, the higher lows coupled with the resistance will form an ascending triangle. Such patterns can resolve on either side, but generally what follows a breakout is a strong and sustained move.
