Fundamental Overview
The USD continues to remain supported since the last
FOMC decision as the market perceived it as more hawkish than expected. After the rally during the low volume Christmas holidays, we are now seeing a pullback pretty much across the board.
The market’s pricing didn’t change much with roughly two rate cuts priced in for this year, which is in line with the Fed’s projections. The central bank has switched its focus back to inflation, so the next US CPI report should have a bigger influence on interest rates expectations than the US NFP this Friday (barring big deviations).
On the CAD side, the BoC cut interest rates by 50 bps at the last policy meeting but
dropped the line saying “if the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further", which suggests that we reached the peak in "dovishness" and the central bank will now switch to 25 bps cuts and will slow the pace of easing.
Yesterday, Canada's Prime Minister Trudeau announced that he will step down as Liberal leader as soon as his party finds a replacement. The market expects a 25 bps cut at the upcoming meeting and a total of 67 bps of easing by year end.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD couldn’t manage to print a new high after the FOMC spike and it’s now trading below the pre-FOMC level. From a risk management perspective, the buyers will have a better risk to reward setup around the
trendline to position for new highs. The sellers, on the other hand, will want to see the price breaking lower to regain control and start targeting new lows.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the pair has been ranging between the 1.4340
support and the 1.4460 resistance since the FOMC decision, but broke out of the range this week. The sellers piled in for a drop into the trendline where we can expect the buyers to step in.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, there’s not much else we can add here as the buyers will look for a bounce on the trendline, while the sellers will target a break lower. The red lines define the
average daily range for today.
Upcoming Catalysts
Today, we get the US ISM Services PMI and the US Job Openings data. Tomorrow, we have the US ADP and the FOMC Meeting Minutes. On Thursday, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US NFP and the Canadian Employment report.
This article was written by Giuseppe Dellamotta at
www.forexlive.com.
