USDCAD daily chart July 25

Scotia is in line with the consensus in forecasting a 75 bps hike this week but the FX team notes a pattern in USD trading around decisions this year, which have all tended to be hawkish.

"So far this year, the USD has tended to appreciate modestly running into the FOMC decision, with initial gains or losses around the meeting outcome tending to even out in the following few trading sessions, leaving the DXY more or less flat over the following week," they write.

So far this week the dollar is weaker ahead of the Fed and they think more of that is coming as the consensus drifts lower around Thursday's Q2 advance GDP print.

"A cautious sounding Fed and a second successive negative US GDP print risks weakening the USD significantly, we believe, at least in the short run. There are clear reasons to feel that upside risks for the EUR, GBP and JPY are limited at present (central bank repricing risks are a threat for the EUR and GBP, gas price supply remains a clear risk hanging over the EUR and the BoJ’s policy settings seem unlikely to change before next year). However, markets are positioned long USDs and a flush out of positioning could develop into a significant correction in the USD," they write.

In the Dollar Index they note that the 105.80/85 level is an important one.