The miss in the US CPI report last week has led to a broad US Dollar weakness as the market anticipated one last hike at the July FOMC meeting. The falling inflation, strong labour market and rising consumer sentiment have also strengthened the soft-landing narrative and caused a positive risk sentiment in the markets.
Conversely, the BoC hiked rates by 25 bps as expected as the central bank doesn’t like the persistently high underlying inflation with a tight labour market. In fact, the BoC Governor Macklem said that the Bank of Canada is prepared to raise rates further as if they don’t do enough now, they will likely have to do even more later.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that after pulling back all the way up to the 50% Fibonacci retracement level, the USDCAD started to fall as the US NFP missed expectations and eventually even the CPI came lower than expected across the board. We recently got a pullback into the 1.3225 level where the sellers piled in again leaning on the resistance and the red 21 moving average. The target at the moment should be the 1.30 handle.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we got a big upward spike into the 1.3225 resistance as the US Consumer Sentiment report surprised to the upside. This move has also led to a moving average crossover, so the buyers at the moment have the upper hand.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the sellers have leant on the previous swing level at 1.3204 where they had also the confluence with the red 21 moving average. If the selling momentum increases, we should see the price falling from here and then breaking the recent low at 1.3160 where more sellers are likely to pile in. The buyers, on the other hand, will want to see the price breaking above the 1.3204 level to start piling in and then increase the buying pressure if the price rises above the key 1.3225 resistance to target the 1.33 handle.
Upcoming Events
Today the market will focus more on the US Retail Sales report, while the Canadian CPI is likely to have a marginal effect, unless it deviates a lot from expectations. Given the current positive risk sentiment, we should see the USD under pressure in case the data misses expectations by a low margin as the market is likely to interpret it as a healthy cooling. On the other hand, a big miss should spook the market a bit and lead to broad US Dollar buying as a safe haven. Finally, better than expected data should increase the US Dollar selling as the soft-landing narrative remains in full swing.
