US:
- The Fed hiked by 25 bps as expected and kept everything unchanged at the last meeting.
- Fed Chair Powell reaffirmed their data dependency and kept all the options on the table.
- Inflation measures since then showed further disinflation.
- The labour market displayed signs of softening although it remains fairly solid.
- Overall, the economic data started to surprise to the downside lately.
- This week the ISM Services PMI and Jobless Claims surprised to the upside.
- The Fed members are leaning more towards a pause in September rather than another rate hike.
- The market doesn’t expect the Fed to hike at the September meeting, but there’s now a 50/50 chance of a hike in November.
Canada:
- The BoC left interest rates at 5.00% as expected but remains prepared to raise rates further if needed.
- BoC Governor Macklem delivered a hawkish speech which points to another rate hike if the data remains strong into the next policy meeting.
- The Canadian underlying inflation data beat expectations on all measures for the June readings and recently 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.
- ·The Canadian Retail Sales and GDP missed expectations recently pointing to a weakening economy.
- The market doesn’t expect the BoC to hike again.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD has reached the key 1.3664 resistance and probed above it yesterday before falling back soon after. The sellers are likely to pile in here with a defined risk above the resistance to target a pullback into the upward trendline. The buyers, on the other hand, may want to wait for the price to indeed pull back into the trendline where there’s also the confluence with the red 21 moving average before positioning for a break above the 1.3664 resistance, and eventually the 1.38 handle.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we continue to have the massive divergence with the MACD started around the beginning of August. This is a sign of weakening momentum often followed by pullbacks or reversals. In this case, we should see the pullback into the trendline where we can also find the 50% Fibonacci retracement level for further confluence. A break below the trendline would invalidate the bullish setup and confirm a reversal, which should lead to a drop into the 1.34 handle.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another divergence right into the 1.3664 resistance. This is another signal that we may be due for a pullback and a break below the minor black trendline should confirm the correction into the major upward trendline. If the price bounces on the minor trendline and continues higher breaking above the resistance, then we might see the buyers jumping onboard for a rally into the 1.38 handle, although form a risk management perspective it’s a less desirable setup.
Upcoming Events
Today we will see the latest Canadian labour market data with the focus likely to be on the wages figure given that the BoC said that they are closely watching wage growth. A strong report should give the CAD a boost in the short term, while weak readings might put even more pressure on the commodity currency.