FUNDAMENTAL OVERVIEW
USD:
The US dollar continues to bounce around as macro and geopolitical uncertainty is keeping the market rangebound. The greenback strengthened yesterday after early reports suggested the third round of US–Iran talks had broken down, with Iran reportedly rejecting US demands. Later in the day, however, new headlines indicated that the discussions had actually made significant progress and that another round was scheduled for next week. The USD eventually gave back the gains.
The potential US-Iran military escalation and the future Fed’s interest rates path remain the biggest risks for the US dollar. A military escalation will likely boost the greenback on severe risk-off mood. A hawkish repricing of interest rate expectations on stronger US data would also have a positive effect on the USD. Fed’s Waller placed a great deal on next week’s NFP report.
CAD:
On the CAD side, nothing has changed as the BoC remains in neutral mode and traders await new developments on the USMCA review front.
Yesterday, Dominic LeBlanc, who is the Canadian minister responsible for US-Canada trade, said that private government to government conversations on USMCA are "not discouraging". Regarding separate bi-lateral deals, he said there have always been bilateral arrangements between the three countries.
The signals have been mixed, but overall, slightly positive. The market is pricing some chances of a rate cut by year-end but those remain low. The economic data has been supportive of such stance with the labour market stabilising and core inflation hovering a bit above the 2.5% mid-point of the BoC 2-3% target range.
USDCAD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDCAD pulled all the way back to the monthly high around the 1.3725 level and stalled as the market got stuck in a consolidation. We can expect the sellers to lean on the 1.3725 resistance and the major downward trendline to position for a drop into new lows. The buyers, on the other hand, will look for a upside breakouts to increase the bullish bets into the 1.3900 handle next.
USDCAD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see the recent price action formed a potential head and shoulders pattern near the monthly high with the neckline standing around the 1.3650 level. The buyers will likely continue to step in around the neckline with a defined risk below it to keep pushing into new highs, while the sellers will look for a break lower to increase the bearish bets into the 1.3500 handle next.
USDCAD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s not much we can add here as the buyers will have a better risk to reward setup around the neckline, while the sellers will either wait for a break below the neckline or above the resistance. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we conclude the week with the Canadian GDP and the US PPI data but continue to watch out for US-Iran headlines ahead of the weekend.
