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.
- Last week the ISM Services PMI and Jobless Claims surprised to the upside.
- The Fed members are leaning more towards a pause in September.
- 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 recent report showed another uptick in wage growth and this is something the Governor Macklem said the BoC is watching carefully.
- The market doesn’t expect the BoC to hike again, but we still have lots of data before the next meeting.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD eventually got rejected from the key 1.3664 resistance and pulled back into the upward trendline where we have also the red 21 moving average for confluence. This is where we can expect the buyers to step in with a defined risk below the trendline to position for a breakout of the resistance and a rally into the 1.3862 level. The sellers, on the other hand, will want to see the price breaking below the trendline to pile in and extend the fall into the 1.34 handle.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a massive divergence with the MACD going on from the beginning of August. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we kept on getting the pullbacks with the buyers buying the dips, but one negative catalyst for the USD and we might see a quick turnaround. The price is now trading around a key support where we have the trendline and the 61.8% Fibonacci retracement level for confluence. This is a strong area for the buyers, so if the price falls below the support, the bullish setup would be invalidated, and the sellers will regain control.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we recently got another divergence right at the 1.3664 resistance that ended up in a reversal that brought the price into the support zone. More conservative buyers may want to wait for the price to break above the resistance zone around the 1.36 handle before piling in for another rally.
Upcoming Events
This week we have many important events beginning with the US CPI tomorrow, which is expected to show an increase in headline inflation but further disinflation in the core measure. On Thursday, we will see the latest US Jobless Claims, PPI and Retail Sales data. Finally on Friday, we get the University of Michigan Consumer Sentiment report.
