US:
- The Fed left interest rates unchanged as expected at the last meeting.
- The macroeconomic projections were revised higher, and the Dot Plot showed that the FOMC still expects another rate hike by the end of the year with less rate cuts projected in 2024.
- Fed Chair Powell reaffirmed their data dependency but added that they will proceed carefully.
- The US CPI last week beat expectations on the headline figures, but the core measures came in line with forecasts and the market’s pricing barely changed.
- The labour market remains fairly solid as seen once again last week with the beat in Jobless Claims, although continuing claims surprisingly missed.
- The US PMIs recently showed that the US economy remains pretty resilient.
- The University of Michigan Consumer Sentiment report last Friday missed across the board with the inflation expectations figures spiking back up.
- The Fed members continue to cite elevated long-term yields as a reason to proceed carefully and will likely pause in November as well.
- The market doesn’t expect the Fed to hike anymore.
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 underlying inflation data remains elevated.
- The Canadian underlying inflation, in fact, has been beating expectations month after month with another beat across the board last month.
- On the labour market side, the recent report beat expectations and showed another uptick in wage growth, which is something that Governor Macklem said the BoC is watching carefully.
- The market doesn’t expect the BoC to hike at the upcoming meeting, but the central bank is not afraid to deliver surprising decisions.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that the USDCAD pair almost erased the rally following the US CPI release as BoC Governor Macklem delivered a hawkish speech in which it looks like the central bank could squeeze another rate hike if the underlying inflation data continues to beat expectations. The divergence between the latest leg higher and the MACD points to a likely correction into the trendline around the 1.35 handle.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the pair reached the 61.8% Fibonacci retracement level following the US CPI release and started to slowly erase the gains as the market is likely positioning for a surprising BoC rate decision next week if today’s CPI data beats forecasts. The support zone around the 1.3620 will be key for the next direction as a strong bounce should see more buyers piling in and position for a rally into new highs, while a break lower should see the sellers piling in more aggressively and extend the drop into the trendline around the 1.35 handle.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we recently got a small bounce that eventually got rejected from the previous support turned resistance around the 1.3635 level. Nonetheless, the price broke above the counter-trendline and the moving averages crossed over, so it could be a sign that the bullish momentum is prevailing, although the buyers will need a break above the 1.3635 level to confirm it. A fall back below the counter-trendline and a break below the support would invalidate the bullish setup and likely lead to more selling pressure.
Upcoming Events
Today we will see the latest Canadian inflation figures which will be very important for the BoC ahead of their monetary policy meeting next week. The market is likely to focus on the core measures as those are the ones the BoC is watching carefully to decide on what do to next on the policy front. Later in the day we will also get the US Retail Sales data where it will be interesting to see if consumers spending is starting to slow or it’s still holding on. On Thursday, we will get another US Jobless Claims report, but we will also hear from Fed Chair Powell where the market will be focused on any hint about the near term policy outlook. Finally, on Friday, we will see the Canadian Retail Sales figures.
