Following the big USD depreciation after the miss in the US CPI report, we saw the greenback coming back across the board as the US data kept on surprising to the upside. In fact, the US Retail Sales Control Group beat expectations by a big margin and the US Initial Claims fell to record lows. Moreover, the US PMIs yesterday showed a mixed picture with Services PMI missing expectations but the Manufacturing PMI jumping from 46.2 to 49.0. As long as we keep on seeing good data for the US and the labour market remains strong, we are likely to see more rate hikes from the Fed.

On the other hand, 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. The recent Canadian underlying inflation data beat expectations on all measures, but the Canadian Retail Sales missed across the board. Overall, it’s a mixed picture for the BoC and it puts them in a tough position.

USDCAD Technical Analysis – Daily Timeframe

USDCAD Technical Analysis

On the daily chart, we can see that the price got stuck in a range between the 1.31 handle and the 1.3225 resistance. The recent rejection from the 1.3225 level and the red 21 moving average suggests that we may see another test of the 1.3100 support. If the USDCAD breaks below the 1.31 handle, we should see more sellers piling in and extend the drop into the 1.30 handle. The buyers, on the other hand, will need the price to break above the 1.3225 resistance with conviction to start targeting the 1.34 resistance.

USDCAD Technical Analysis – 4 hour Timeframe

USDCAD Technical Analysis
USDCAD 4 hour

On the 4 hour chart, we can see that if we draw a trendline connecting the lows, we might have an ascending triangle pattern forming. The price can break on either side of such patterns, but after a breakout, we can generally see a big extension in the direction of the breakout. So, the these levels will be key to watch.

USDCAD Technical Analysis – 1 hour Timeframe

USDCAD Technical Analysis
USDCAD 1 hour

On the 1 hour chart, we can see that we have a short term downtrend defined by the downward trendline and the moving averages crossed to the downside. This is where it should get interesting. In fact, if the price breaks above the downward trendline, the buyers are likely to pile in to target the 1.3225 resistance first, and upon a breakout, the 1.34 handle. The sellers, on the other hand, will want to see the price breaking below the upward trendline to pile in and target the 1.30 handle.

Upcoming Events

The highlight for today will be the US Consumer Confidence report. Previously, the report beat expectations by a big margin, which coupled with the miss in the US CPI report a couple of days before, gave the market soft landing vibes. At this point though, it looks like strong data is going to give the Fed a hard time and probably force them to do more. Tomorrow, the Fed is expected to hike by 25 bps and the market’s attention will be centred on possible hints about a pause or further rate hikes. On Thursday it will be the time for another US Jobless Claims report, where strong data should support the US Dollar and weak readings should weaken it. Finally, to conclude the week, we will see the latest US PCE and ECI reports on Friday with the market likely to pay more attention to the wages data given the strength in the labour market.

See also the video below: