Fundamental Overview
The puzzling weakness in the US Dollar following Trump’s victory looks more and more like it was just a “sell the fact” reaction. The greenback is now back in the driving seat, and we might have also seen some pre-positioning in the past couple of days into a potentially hot US CPI report today.
At the latest Fed’s decision, Fed Chair Powell said that they expect bumps on inflation and that one or two bad data months on inflation won’t change the process. This keeps the 25 bps cut in December in place even if we get higher inflation readings.
The market though is forward-looking, and the rise in Treasury yields showed that the market sees risks to the inflation outlook. Moreover, the red sweep could increase those fears if the progress on inflation stalls, or worse, reverses.
The market might have already assigned some premium to a higher than expected print, so there's some risk of a short-term "sell the fact" reaction on a higher than expected number.
It goes without saying that a bigger than expected upside surprise should see the momentum increasing immediately with the US Dollar likely rallying across the board and Treasury yields shooting higher.
On the other hand, a soft print will likely see the US Dollar and Treasury yields falling, although one can argue that it's just going to provide a pullback to go long the US Dollar and short bonds again at even better levels as future conditions will likely see inflation getting stuck above the target or even moving back higher.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD is once again back at the 2-year high amid USD strength. The buyers will want to see the price breaking higher to increase the bullish bets into new highs, while the sellers will look for a rejection to position for a drop back into the 1.38 handle.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a strong support zone around the 1.3825 level where the price got rejected from several times in the past weeks. We may now have a range between the 1.3825 level and the 1.3950 level. The market participants will continue to play the range until we get a breakout on either side.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here as the rangebound price action makes all the technical levels between the main support and resistance zones pretty weak. The red lines define the average daily range for today.
Upcoming Catalysts
Today, we have the US CPI report. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US Retail Sales data.
