Fundamental
Overview
The USD performance has
been mixed in the past days but still on net negative despite the decreasing
December rate cut odds. It looks like the stock market is what has been driving
all other markets.
In fact, when the stock
market had positive days, we’ve seen Treasury yields and the US dollar rising,
but when stocks performed poorly, Treasury yields and the greenback gave back
the gains. The market might be thinking that a selloff in the stock market is
going to weigh significantly on the economy, eventually requiring the Fed to
cut more or more aggressively.
The focus now is of course
on the Fed and the US data ahead of the December FOMC meeting. The market
pricing is now showing just a 42% chance of a cut in December, so the data will
have the final say.
I don’t think the September
NFP on Thursday is going to matter much if it’s soft given that it’s old data,
but a strong report might be taken as meaningful because the market could think
that conditions were already getting better in September before the two rate
cuts.
Therefore, I think the
November NFP is going to have the final say, which will hopefully get released
just before the FOMC meeting in December (we won’t get the November CPI in
time).
On the CAD side, the BoC
cut interest rates by 25 bps at the last meeting as expected bringing the
policy rate to the lower bound of their estimated neutral rate range of
2.25%-3.25%. The central bank has also signalled that they reached the end of
their cutting cycle, although they kept the door open for another cut if
needed.
The recent data gave the BoC
all the reasons to remain on the sidelines as we got another strong Canadian
employment report and the inflation data showed the Trimmed Mean CPI Y/Y remaining
around 3%.
USDCAD
Technical Analysis – Daily Timeframe
USDCAD daily
On the daily chart, we can
see that we have a major trendline around the 1.3970 level. If the price gets
there, we can expect the buyers to lean on the trendline with a defined risk
below it to position for a rally into new highs. The sellers, on the other
hand, will want to see the price falling below the trendline to increase the
bearish bets into the 1.3887 level next.
USDCAD Technical
Analysis – 4 hour Timeframe
USDCAD 4 hour
On the 4 hour chart, we can
see that we have a minor upward trendline defining the current bullish
momentum. The buyers are likely to lean on the trendline to keep pushing into
new highs, while the sellers will look for a break lower to pile in for a drop
into the major trendline.
USDCAD Technical
Analysis – 1 hour Timeframe
USDCAD 1 hour
On the 1 hour chart, there’s
not much else we can add here as the buyers will look for a bounce, while the sellers
will target a break. We have also a minor support zone around the 1.4015 level
where the dip-buyers could step in, but a break below that zone should have free
road until the major trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Today we get the weekly ADP jobs data. Tomorrow, we have the FOMC meeting
minutes. On Thursday, we get the September NFP report and maybe the US Jobless
Claims data. On Friday, we conclude the week with the Canadian Retail Sales
data and the US Flash PMIs.
