Fundamental Overview
The USD weakened across the board last week following another soft US CPI report and benign Jobless Claims figures. The market not only fully priced in a rate cut in September but also started to price in some chances of a back-to-back rate cut in November.
Overall, we had a goldilocks data release with an economy that is slowing but still growing. This should support the soft-landing narrative and be positive for the risk sentiment.
The CAD, on the other hand, keeps on being supported against the US Dollar mainly because of the risk-on sentiment as the US data continues to support at least two rate cuts from the Fed without sending recessionary signals.
On the monetary policy front, the next big event will be the CPI report tomorrow. We saw another jump in wage growth in the latest labour market report, so the BoC will likely need good CPI figures to deliver a rate cut in July. The market is assigning a 75% probability for a rate cut at the upcoming meeting.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD remains confined in a tight range right at the key 1.36 support zone. That’s where the buyers keep on stepping in to position for a rally back into the 1.3785 resistance with a better risk to reward setup. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the new lows with the 1.35 handle as the first target.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more clearly the tight range between 1.3600 and 1.3650 levels. There’s not much to do here and the market participants will likely keep on “playing the range” until we get a breakout.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we got a slight breakout in the Asian session but that was faded quickly in the European session. It’s now just a waiting game until we get a breakout on either side. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have Fed Chair Powell speaking at the Economic Club of Washington, D.C. Tomorrow, we get the Canadian CPI and the US Retail Sales report. On Wednesday, we have Fed’s Waller speaking. On Thursday, we have the latest US Jobless Claims figures, while on Friday we conclude with the Canadian Retail Sales data.