USD
- The Fed left interest rates unchanged as expected 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, which implies a rate cut coming soon.
- The US CPI last week came in line with expectations with the disinflationary progress continuing steady. This was also confirmed by the US PPI the day after where the data missed estimates.
- The labour market has been showing signs of weakening lately but we got some strong releases recently with the US Jobless Claims and the NFP coming in strongly.
- The US Retail Sales last week beat expectations across the board as consumer spending continues to hold.
- The latest ISM Manufacturing PMI missed expectations falling further into contraction, while the ISM Services PMI beat forecasts holding on in expansion.
- 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 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 recent Canadian CPI missed expectations across the board and the underlying inflation measures eased, which was a welcome development for the BoC.
- On the labour market side, the latest report beat expectations although the unemployment rate ticked higher again.
- 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 is testing the key swing level at 1.3382. The price looks a bit overstretched as depicted by the distance from the blue 8 moving average. In such instances, we can generally see a pullback into the moving average or some consolidation before the next move. The buyers are likely to step in here with a defined risk below the low to target a rally into the trendline.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the pair has been consolidating around the key level recently as the buyers are starting to pile in. Some aggressive sellers might lean on the red 21 moving average to target a break below the low and extend the selloff into the 1.3225 level. From a risk management perspective, the sellers will have a much better risk to reward setup around the trendline where they will also find the confluence with the previous swing low level and the 50% Fibonacci retracement level.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price has been diverging with the MACD coming into the key swing level. This is generally a sign of weakening momentum often followed by pullbacks or reversals. This should be another layer of confluence for the buyers with the trendline being the natural target. A break above the recent resistance zone at the 1.34 handle should see the buyers increase their bullish bets into the trendline. The sellers, on the other hand, will try to defend the level and fold as soon as the price breaks higher.
Upcoming Events
This week is a bit empty on the data front as we head into the Christmas holidays. Today, we have the Canadian CPI data. Tomorrow, we will get the US Consumer Confidence report. On Thursday, we get the Canadian Retail Sales and the US Jobless Claims data, while on Friday we conclude the week with the US PCE report.
