Fundamental
Overview
The USD sold off across the
board on Friday as Fed Chair Powell tilted more dovish by saying that “with
policy in restrictive territory, the baseline outlook and the shifting balance
of risks may warrant adjusting our policy stance.”
That saw traders firming up
expectations for a rate cut in September which now stands around 85%
probability with a total of 54 bps of easing by year-end. Overall, it’s not the
repricing in interest rates expectations that weighed on the greenback but hedges
being unwound.
Now, the focus turns to the
US NFP report next week which is going to be crucial and will influence greatly
interest rates expectations. Strong data might take the probability for a
September cut towards a 50/50 chance but will certainly see a more hawkish
repricing further down the curve. Soft data, on the other hand, will likely see
traders increasing the dovish bets with a third cut by year-end being priced
in.
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. The latest employment report surprised to the
upside, while the inflation data came out slightly below expectations, although
still around 3%.
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 23 bps of
easing by year-end.
USDCAD
Technical Analysis – Daily Timeframe
USDCAD Daily
On the daily chart, we can
see that USDCAD probed above the key swing level at 1.3860 but eventually gave
back all the gains following Powell’s dovish tilt. The sellers will likely step
in around these levels with a defined risk above the swing level to position
for a drop into the 1.36 handle. The buyers, on the other hand, will want to
see the price rising back above the swing level 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 that we have a major upward trendline defining the bullish momentum
on this timeframe. The buyers will likely lean on the trendline with a defined risk
below it to position for a rally into the 1.40 handle. The sellers, on the other
hand, will look for a break lower to increase the bearish bets into the 1.36
handle next.
USDCAD Technical
Analysis – 1 hour Timeframe
USDCAD 1 hour
On the 1 hour chart, there’s
not much we can add here as the buyers will look for a bounce around the
trendline, while the sellers will look for a break. The red lines define the average daily range for today.
Upcoming Catalysts
Tomorrow we have the US Consumer Confidence
report. On Thursday, we get the latest US Jobless Claims figures. On Friday, we
conclude the week with the Canadian GDP and the US PCE price index.
