USD
- The Fed left interest rates unchanged as expected at the last meeting with basically no change to the statement.
- Fed Chair Powell stressed once again that they are proceeding carefully as the full effects of policy tightening have yet to be felt.
- The US Core PCE last week came in line with forecasts with the disinflationary progress continuing steady.
- The labour market continues to show weakness as Continuing Claims are now rising at a fast pace with the last NFP report missing across the board. This week’s Job Openings and ADP came below forecasts. although the Jobless Claims were better than expected.
- The ISM Manufacturing PMI last week missed expectations falling further into contraction, while the ISM Services PMI beat forecasts holding on in expansion.
- The hawkish Fed members recently shifted their stance to a more neutral position.
- The market expects the Fed to start cutting rates as soon as Q1 2024.
CAD
- The BoC kept the interest rate steady at 5.00% as expected with the usual caveat that it’s prepared to raise the policy rate further if needed.
- BoC Governor Macklem recently has been leaning on a more neutral side as inflation continues to abate.
- The recent Canadian CPI missed expectations across the board and the underlying inflation measures eased, which was a welcome development for the BoC.
- On the labour market side, the latest report beat expectations although the unemployment rate ticked higher again.
- The market expects the BoC to start cutting rates in Q2 2024.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD pulled back into the downward trendline where we have also the confluence with the 50% Fibonacci retracement level and the red 21 moving average. This is where the sellers are likely to pile in with a defined risk above the trendline to position for another drop into the swing low at 1.3382. The buyers, on the other hand, will want to see the price breaking higher to invalidate the bearish setup and position for a rally into the highs.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see more closely the bearish setup around the trendline where there’s also the resistance defined by the previous major swing low and the round psychological 1.36 handle. What happens around this resistance zone will likely decide where the pair will head next as a strong rejection should lead to new lows while a break to the upside is likely to trigger a rally into the previous highs.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the latest leg higher diverged with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, it might be another bearish confluence for the sellers as it’s happening right at the key resistance zone. The sellers already piled in at the resistance with a defined risk above it and if the price was to revisit that level, we can expect even more sellers stepping in. If the price falls and breaks the recent higher low at 1.3550 though, the sellers are likely to increase their bearish bets as the market structure on this timeframe will switch to a downtrend again.
Upcoming Events
Today all eyes will be on the US NFP report as it could increase the amount of rate cuts expected in 2024 or reverse some of them.
See the video below
