Fundamental
Overview
The US Dollar continues to
consolidate around the highs although it’s stronger against the commodity
currencies. In the bigger picture, the market reached the peak in the repricing
of interest rates expectations, and it will need stronger reasons to price out
the remaining rate cuts for 2025.
In fact, despite lots of
strong US data, the market’s pricing remaining largely unchanged around three
rate cuts by the end of 2025. The focus is now on the US CPI report due
tomorrow. It looks like the Fed really wants to cut next week before pausing for
some months. So, we might need an upside surprise in the core inflation numbers
to force them to change plans.
Even if the Fed decides to
cut next week despite a hot CPI, the market will likely scale back further the
rate cuts expectations for 2025 and that could trigger some risk aversion with
the US Dollar rallying across the board. The best scenario would be a soft
report given the overstretched long positions in the greenback. In such a case,
we can expect the US Dollar to selloff across the board.
On the CAD side, the BoC this
week is expected to cut interest rates by 50 bps bringing the policy rate to
3.25%. The market’s expectations kept on swinging back and forth between 25 and
50 bps in the past weeks as we got a higher than expected CPI report that strengthened the probabilities
for a 25 bps cut, but then a weaker than expected GDP report brought back the chances to
basically a 50-50 scenario. The soft labour market
report on Friday
though sealed the case for a 50 bps cut.
USDCAD
Technical Analysis – Daily Timeframe
USDCAD Daily
On the daily chart, we can
see that USDCAD rallied back to the highs as the market increased the chances for
a 50 bps cut for the BoC following the latest Canadian employment report. From
a risk management perspective, the buyers will have a better risk to reward
setup around the trendline.
The sellers, on the other hand, will likely step in around these levels to
position for a pullback into the trendline.
USDCAD Technical
Analysis – 4 hour Timeframe
USDCAD 4 hour
On the 4 hour chart, we can
see that we have a nice support zone around the 1.41 handle. If the price were
to pull back into it, we can expect the buyers to step in with a defined risk
below the support to position for a rally into new highs. The sellers, on the
other hand, will look for a break lower to increase the bearish bets into the
trendline.
USDCAD Technical
Analysis – 1 hour Timeframe
USDCAD 1 hour
On the 1 hour chart, we can
see that we have a minor upward trendline defining the current bullish momentum.
The buyers will likely lean on it to keep targeting new highs, while the
sellers will look for a break lower to position for a drop into the 1.41
support. The red lines define the average daily range for today.
Upcoming
Catalysts
Tomorrow we have the US CPI report and the BoC rate decision. On Thursday, we get
the latest US Jobless Claims figures and the US PPI.
