Fundamental Overview
The USD has been rallying steadily against most major currencies in the recent couple of weeks, although the catalyst behind the move has been unclear. A good argument has been that most of the moves we’ve been seeing in the past 10 trading days were driven by deleveraging from strengthening Yen.
Basically, the squeeze on the carry trades impacted all the other markets. Given the magnitude of the recent appreciation in the Yen and the correlation with many other markets, it looks like this could be the reason indeed.
From the monetary policy perspective, nothing has changed as the market continues to expect at least two rate cuts by the end of the year and sees some chances of a back-to-back cut in November.
The data continues to suggest that the US economy remains resilient with inflation slowly falling back to target. Overall, this should continue to support the soft-landing narrative and be positive for the general risk sentiment.
The CAD, on the other hand, has been supported against the US Dollar in the past months mainly because of the risk-on sentiment, although the recent events with the Yen boosted the US Dollar against many major currencies. On the monetary policy front, the BoC cut rates by 25 bps to 4.50% as expected last week signalling more to come if inflation were to keep falling.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD eventually managed to break above the 1.3785 resistance zone and extended the rally into the key 1.3860 level. This is where we can expect the sellers to step in with a defined risk above the level to position for a drop back into the 1.36 support. The buyers, on the other hand, will want to see the price breaking above the resistance to increase the bullish bets into the 1.40 handle next.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a trendline defining the bullish momentum. The buyers will likely keep on leaning on the trendline to target a break above the resistance. The sellers, on the other hand, will want to see the price breaking below the trendline to increase the bearish bets into the 1.36 support.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that if the price were to fall below the trendline, the buyers will have another opportunity to step in around the previous resistance now turned support at 1.3785. A further break below that support will likely see the bearish momentum increasing with the sellers piling in for a drop into the 1.36 support. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US Job Openings and the US Consumer Confidence reports. Tomorrow, we have the BoJ Policy Decision, the Canadian GDP, the US Employment Cost Index and the FOMC Policy Decision. On Thursday, we get the latest US Jobless Claims figures, the Canadian Manufacturing PMI and the US ISM Manufacturing PMI. Finally, on Friday, we conclude the week with the US NFP report.