The USD weakened across the board last week due to a more dovish than expected FOMC decision last week where the Fed decided to signal a bigger QT taper beginning in June and the Fed Chair Powell pushing back repeatedly against rate hike expectations. Moreover, the data on Friday showed that the Fed might indeed just keep rates higher for longer as job and wage growth soften. Nevertheless, the USD has been in the dirving seat this week despite the lack of economic data or major changes in the fundamentals.
The CAD, on the other hand, might have been under pressure due to the sustained weakness in crude oil prices and expectations building for the BOC to cut rates in June, although the employment data on Friday and the Canadian CPI report on May 21st will likely decide if the BOC will wait until July or proceed with a cut already in June.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD has been rallying steadily since the US NFP report. The reasons for the rally are unclear as the only thing that changed is the market pricing in two rate cuts for the Fed after the Friday's data release. Nevertheless, the pair remains in an uptrend as the price bounced on the key support zone around the 1.36 handle where we had also the confluence of the trendline and the 61.8% Fibonacci retracement level. The target for the buyers should be the cycle highs around the 1.39 handle, while the sellers will need a break below the trendline to start positioning for a drop back into the 1.32 handle.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that have a clear uptrend on this timeframe with the price printing higher highs and higher lows. From a risk management perspective though, the buyers will have a much better risk to reward setup around the trendline. The sellers, on the other hand, will want to see the price breaking to the downside to invalidate the bullish trend and position for a drop into the 1.36 support.
Upcoming Catalysts
Tomorrow we get the latest US Jobless Claims figures while on Friday we conclude the week with the Canadian jobs data and the University of Michigan consumer sentiment survey. A lower wage growth figure coupled with another uptick in the unemployment rate will likely weigh a lot on the Canadian Dollar. Conversely data mostly in line with expectations or a bit better shouldn’t change much, although the market might place more probability for a July cut rather than for the June one.
