Fundamental
Overview
The USD came under some
pressure at the start of last week following the US CPI report as the data came
mostly in line with expectations. In the following days though, we got some
hottish data with the US PPI beating expectations by a big margin, the US
Jobless Claims improving further and the inflation expectations in the UMich
survey surprising to the upside.
Overall, we ended the week
basically flat on the US dollar as the aggressive dovish expectations on the
Fed got trimmed a bit. Nevertheless, given the overreaction from the Fed
members to the last soft NFP, a September cut looks unavoidable now and only a
hot NFP report in September might get us to a 50% probability (although it
would certainly diminish expectations for rate cuts after the September one).
The focus has now switched
to Fed Chair Powell’s speech at the Jackson Hole Symposium on Friday. Traders
will be eager to see if he changes his stance as well. Most likely though, he
won’t pre-commit to anything and just reiterate that they will decide based on
the totality of the data.
On the CAD side, the underlying
inflation in Canada has been rising steadily since last December and continues
to hover near the upper bound of the 1-3% target range. The data out of Canada
has been improving recently and the latest employment report surprised to the
upside.
The BoC kept interest rates
unchanged at the last meeting as expected and although it kept the door open
for more rate adjustments, it’s unlikely to do so unless we get another growth
shock or a series of benign inflation data. The market is pricing 22 bps of
easing by year-end.
USDCAD
Technical Analysis – Daily Timeframe
USDCAD Daily
On the daily chart, we can
see that USDCAD rejected the key swing level at 1.3860 following the soft NFP
and got stuck in a consolidation ever since. From a risk management
perspective, the sellers will have a better risk to reward setup around the
swing level to position for a drop into the 1.3540 low. The buyers, on the
other hand, will want to see the price breaking higher to start targeting the
1.40 handle next.
USDCAD Technical
Analysis – 4 hour Timeframe
USDCAD 4 hour
On the 4 hour chart, we can
see more clearly the consolidation between the 1.3818 level and the minor
upward trendline. The buyers will likely lean on the trendline to keep pushing into new highs,
while the sellers will look for a break lower to open the door for new lows.
USDCAD Technical
Analysis – 1 hour Timeframe
USDCAD 1 hour
On the 1 hour chart, there’s
not much we can add here as the sellers will likely continue to pile in around
the 1.3818 level while the buyers will wait for a breakout to target the 1.3860
level next. On an intraday basis, a break below the most recent low at 1.3787
could see the sellers extending the pullback into the trendline. The red lines
define the average daily range for today.
Upcoming Catalysts
Tomorrow we have the Canadian CPI and Fed’s
Bowman speaking. On Wednesday, we have Fed’s Waller and the FOMC meeting
minutes. On Thursday, we get the US Flash PMIs as well as the US Jobless Claims
figures. Finally, on Friday, we conclude the week with Fed Chair Powell speech
at the Jackson Hole Symposium.
