KEY POINTS:
- USD/CAD is approaching a key swing level at 1.3725
- The BoC shifted to a stronger neutral stance, but didn't validate rate hike bets
- The Fed delivered on expectations, but Powell sounded more dovish
- Focus on Canada CPI, US NFP and US CPI
FUNDAMENTAL OVERVIEW
USD:
The USD has been weakening across the board since last week’s FOMC decision. The Fed delivered on expectations cutting by 25 bps and signalling a higher bar for further rate cuts, but Fed Chair Powell’s press conference was seen as fairly dovish.
In fact, instead of sounding as neutral as possible and stressing data-dependency, he downplayed the inflation risk and emphasized the labour market weakness, suggesting that there’s more tolerance for higher inflation than for weaker labour market.
The focus this week will be on the US NFP and CPI reports that will wrap up the last real trading week of the year before market participants prepare for the holidays. Right now, the market is pricing 57 bps of easing by the end of 2026.
If we get strong US data, especially on the labour market side, we will likely see a hawkish repricing which would give the US dollar a boost. On the other hand, weak data should weigh on the greenback further as the market will bring rate cut bets forward.
CAD:
On the CAD side, the BoC last week held interest rates steady but didn't validate the market's rate hike bets just yet. In fact, the central bank kept a cautious tone and highlighted the weak details in the recent GDP and employment reports despite acknowledging the improvements. The market is still fully pricing a rate hike by the end of 2026. Today, we get the latest Canadian inflation report.
The most important data to watch will be the underlying inflation measure, that is the Trimmed Mean CPI Y/Y, which is expected at 2.9% vs 3.0% prior. If we get a lower-than-expected figure, we will likely see some CAD weakness as traders could pare back a bit the rate hike bets. On the other hand, if the data surprises to the upside (the bigger the surprise, the stronger the reaction), we should see CAD strength as the market will likely bring forward rate hike expectations.
USDCAD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that after breaking the major trendline on a blockbuster Canadian employment report, the USDCAD pair extended the drop into 3-month lows. We are now close to the key swing level around 1.3725.
That’s where we can expect the buyers to step in with a defined risk below the level to position for a rally into the 1.39 handle. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 1.3550 level next.
USDCAD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that we have a downward trendline defining the bearish momentum. If we get a pullback into the trendline, we can expect the sellers to lean on it with a defined risk above it to position for a drop into new lows. The buyers, on the other hand, will look for a break above the trendline to pile in for a rally into the 1.39 handle next.
USDCAD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that we have a minor support around the 1.3754 level. The buyers will likely continue to step in there with a defined risk below the support to target a pullback into the trendline. The sellers, on the other hand, will look for a break lower to pile in for a drop into the September lows around the 1.3725 level. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the Canadian CPI data. Tomorrow, we have the US NFP report. On Thursday, we get the US CPI data.
