Fundamental
Overview
The USD continues to be under
pressure as the positive tariffs talks on Monday eased the trade war fears and
weighed on the greenback. In fact, trade war fears have been the only thing
keeping the bid under the USD as interest rate expectations and economic data
took the second place in importance.
As a reminder, the
repricing in rate cuts expectations reached the peak after the last US NFP
report and then the market returned into a dovish pricing following the benign
US inflation data (the market is still pricing roughly two rate cuts for 2025).
Today, we get the January
NFP and it could be another good report. That might lead to a short-term relief
rally for the US Dollar but as we’ve seen with the US Job Openings data, the
labour market continues to normalise and it’s not a source of inflationary
pressures anymore. So, the potential US Dollar rally might be faded.
That doesn’t mean that the
Fed will cut more than the two times projected for this year, but it also
doesn’t call for a more hawkish repricing yet. So, the path of least resistance
for the US Dollar (barring negative tariffs outcomes) might remain to the
downside as a more dovish path going forward looks more probable.
On the CAD side, the focus
has been entirely on the potential trade war with the US, so the data didn’t
matter much. Nonetheless, the positive talks on Monday and the pause in tariffs
gave the Loonie a strong boost with the pair falling back into the key 1.4280
support. The recent data from Canada has been pointing to gradual improvement
after the aggressive rate cuts which might now start to be reflected in the
exchange rate as the trade war fears abate.
USDCAD
Technical Analysis – Daily Timeframe
USDCAD Daily
On the daily chart, we can
see that USDCAD dropped all the way back to the key support
around the 1.4280 level. This is where the buyers will likely step in with a
defined risk below the support to position for a rally back into the highs. The
sellers, on the other hand, will want to see the price breaking lower to increase
the bearish bets into new lows.
USDCAD Technical
Analysis – 4 hour Timeframe
USDCAD 4 hour
On the 4 hour chart, we can
see that we have a minor resistance zone around the middle of the range where
the price got rejected from a couple of times in the weeks. If we get a pullback
into that, we can expect the sellers to step in with a defined risk above the
level to position for a break below the key support. The buyers, on the other
hand, will look for a break higher to increase the bullish bets into the 1.4467
level next.
USDCAD Technical
Analysis – 1 hour Timeframe
USDCAD 1 hour
On the 1 hour chart, there’s
not much we can add here as we now have this mini-range between the 1.4280
support and the 1.4370 resistance. From a risk management perspective, it would
be much better to wait for the US NFP report as any technical setup can be
invalidated in a blink of an eye when the data gets released. The red lines
define the average daily range for today.
Upcoming Catalysts
Today we conclude the week with the Canadian
Employment data and the US NFP report.
