The USDCAD has had a wild up and down ride today, as it first dealt with the US CPI data, and then the surprise 100 basis point hike by the Bank of Canada.
On the CPI, the initial reaction for the USDCAD was to the upside (higher USD). The price moved above recent highs between 1.3051 and 1.30548, but could not sustain the upside momentum and rotated back lower.
Then, after the higher than expected 100 basis point hike, the price initially moved to a new low at 1.2943 before rotating back higher to around the 1.3000 level (the high corrective price reached 1.3006) - a key natural resistance level.
The price moved back to the downside during the Macklem press conference when he said:
- Economy is in excess demand. Unfilled jobs are at a record level
- There's lots of room to reduce vacancies without significantly increasing unemployment
- Unlike many of our trading partners, high commodity prices are bringing income into the country
- By front loading, we're trying to avoid even-higher rates down the road
- So far we're not seeing a wage-price spiral
- We are seeing firms passing through higher input costs quite quickly
Adam pointed out that Macklem commented multiple times that the 100 bp was a front load. It does not necessarily imply a higher terminal rate.
During the press, the overall dollar reaction was also lower as stocks saw some rebound and the yield curve flattened, pushing funds out of the greenback.
So where has the dust settled?
Looking at the hourly chart, the price of the USDCAD fell back below its 100 and 200 hour moving averages at 1.2995 and 1.2975 respectively. The price also fell below the 50% midpoint of the move up from the June 28 low. Bearish
However, not so bearish is that momentum faded when the price reached the swing low from last Friday and Monday at 1.29347. Buyers leaned against that level and the price has rebounded modestly. It currently trades right around the 50% midpoint 1.29506.
What now?
Settling at the 50% retracement is a nice neutral level. Being below the 100 and 200 hour moving averages is a negative/bearish bias. In between those levels is a swing area between 1.29617 and 1.29657. Stay below each keeps the sellers more control.
On the downside, getting below the recent swing lows at 1.29347 is an obvious hurdle that if broken would increase the bearish bias.Sellers hold the best hand after a wild roller coaster ride in the first half of the trading day.
