US:
- The Fed hiked by 25 bps as expected and kept everything unchanged.
- Fed Chair Powell reaffirmed their data dependency and kept all the options on the table.
- Inflation expectations and CPI readings continue to show disinflation with the last two Core CPI M/M figures coming in at 0.16%.
- The US PMIs missed expectations across the board last week, while the US Jobless Claims remained solid.
- Fed Chair Powell’s speech at the Jackson Hole Symposium was mostly in line with what he said previously but he stressed on the need to be careful going forward and that continued strength in the labour market may require further rate hikes.
- The first half of the week saw US Job Openings and Consumer Confidence reports missing expectations by a big margin, followed by a miss in the US ADP data and a beat in the US Jobless Claims.
- The market doesn’t expect another hike from the Fed anymore, but a lot will depend on the data going forward.
Canada:
- 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 last 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.
- The Canadian Core Retail Sales missed expectations.
- Overall, it’s a mixed picture for the BoC.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD has been rallying non-stop for many weeks and almost reached the key 1.3664 resistance. The pair has finally pulled back recently, and the price is now testing the red 21 moving average. This is where we can expect the buyers to step in again with a defined risk below the moving average to target another higher high. A break below the moving average should extend the correction towards the 1.34 handle where we will also find the broken trendline as an extra support.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we’ve been diverging with the MACD for a long time and this is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, the break below the trendline opened the door for a reversal but the pair will need to break through the support around the 1.35 handle first. In fact, this is where we can expect the buyers to step in with a defined risk below the support to position for another rally.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another divergence right at the support. This should be another confirmation that a bounce is indeed in the cards and the next target should be the 1.3553 resistance. That’s where the sellers should pile in with a defined risk above the resistance and target a break below the 1.35 support. If the price breaks above the resistance, the buyers will regain control and the pair will likely surge to new highs.
Upcoming Events
Today the market will be focused on the main release of the week: the US NFP report. We will also have the US ISM Manufacturing PMI an hour and a half later, but the labour market data is the priority right now. A bad reading is likely to weaken the US Dollar in the short term, but if the data is really bad, the market may start to fear the recession and the greenback should come back soon after. A good reading is likely to be linked with the soft-landing scenario and might be bearish for the USD as well. Overall, it’s a mixed picture at the moment as the Fed is expected to pause at the September meeting and we might get much worse economic data before the next meeting in November.