USD
- The Fed left interest rates unchanged as expected at the last meeting with a shift in the statement that indicated the end of the tightening cycle.
- The Summary of Economic Projections showed a downward revision to Growth and Core PCE in 2024 while the Unemployment Rate was left unchanged. Moreover, the Dot Plot was revised to show three rate cuts in 2024 compared to just two in the last projection.
- Fed Chair Powell didn't push back against the strong dovish pricing and even said that they are focused on not making the mistake of holding rates high for too long.
- The latest US CPI slightly beat expectations but analysts expect the Core PCE to print at 0.2% M/M again following the CPI data.
- The labour market continues to soften although Initial Claims keep on hovering around cycle lows while Continuing Claims got stuck at a higher level.
- The latest ISM Manufacturing PMI beat expectations, while the ISM Services PMI missed by a big margin.
- The hawkish Fed members have been leaning on a more neutral side lately.
- The market expects the Fed to start cutting rates in Q1 2024.
CAD
- The BoC kept the interest rate steady at 5.00% as expected at the last meeting with the usual caveat that it’s prepared to raise the policy rate further if needed.
- BoC Governor Macklem recently has been leaning on a more neutral side and even started to talk about rate cuts although he remains uncertain on the timing.
- The latest Canadian CPI beat expectations across the board with the underlying inflation measures remaining elevated, which should give the BoC a reason to wait for more data before considering rate cuts.
- On the labour market side, the latest report missed expectations although wage growth spiked to the highest level since 2021.
- The Canadian PMIs continue to fall further into contraction as the economy keeps on weakening amid restrictive monetary policy.
- The market expects the BoC to start cutting rates in Q2 2024.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD rejected a key resistance zone where we had the confluence with trendline, the 50% Fibonacci retracement level and the previous swing level. The price spiked higher yesterday following the US data release but eventually erased all the gains finishing the day lower. The sellers will now target the 1.3225 level while the buyers will want to see the price breaking higher to invalidate the bearish setup and start targeting the 1.36 handle.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the pair has been diverging with the MACD trading into the trendline. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, it might be another layer of confluence for the sellers and increases the chances of seeing a bigger drop from these levels.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see more closely the current price action with the price rejecting the lower high around the 1.3350 level. The buyers are likely to step in here with a defined risk below the level to position for a break above the major downward trendline. The sellers, on the other hand, will want to see the price breaking below the lower high to increase the bearish bets into the 1.3225 level.
Upcoming Events
Today the only notable event on the agenda is the US PPI data.