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 this 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 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 as inflation continues to abate.
  • 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 market expects the BoC to start cutting rates in Q2 2024.

USDCAD Technical Analysis – Daily Timeframe

USDCAD Technical Analysis
USDCAD Daily

On the daily chart, we can see that USDCAD rejected the trendline and sold off as the Fed came out surprisingly dovish. The pair has now reached the key swing low at 1.3382 where we can expect the buyers to step in with a defined risk below the level to position for a rally into the trendline. We can also notice that the price is a bit overstretched to the downside 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.

USDCAD Technical Analysis – 4 hour Timeframe

USDCAD Technical Analysis
USDCAD 4 hour

On the 4 hour chart, we can see that we recently got a fakeout above the trendline, which is generally a reversal signal, and as soon as the price fell below the support at 1.3550, the sellers piled in aggressively supported by the dovish Fed. From a risk management perspective, the sellers would be better off waiting for a pullback after such a strong and quick selloff. The probable resistances will be the 1.35 handle and the trendline.

USDCAD Technical Analysis – 1 hour Timeframe

USDCAD Technical Analysis
USDCAD 1 hour

On the 1 hour chart, we can see that the price is starting to diverge with the MACD right at the key swing low 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 first target coming in at 1.35.

Upcoming Events

Today the only notable event on the agenda is the release of the US PMIs.