FUNDAMENTAL OVERVIEW
USD:
The greenback weakened across the board today following the news of the US Department of Justice subpoenaing the Federal Reserve in an unprecedented move that escalates the ongoing conflict between President Trump and Fed Chair Powell for not lowering interest rates faster.
The official reason is that the DOJ is focusing on the Federal Reserve headquarters renovation to see whether Powell made misleading or false statements to the Senate Banking Committee regarding the scale, costs and luxury features of the project.
In reality, everybody knows that this is just a political pretext to intimidate the Fed Chair and force him to cut interest rates faster. We have already seen this kind of intimidation with Fed Governor Cook last year when Trump tried to fire her for cause without success as we continue to await the US Supreme Court decision on that case.
The US Dollar sold off on the news because a potential loss of Fed independence increases the risk of uncontrolled inflation in the future leading to a debasement. The probability of the loss of Fed independence remains very low though as the consequences would be too big not only for the US but the global economy as a whole.
Tomorrow, we have the US CPI report and that could be a major market-moving release. A hot report will likely trigger some hawkish repricing in interest rate expectations and support the US Dollar. On the other hand, soft data should keep the market on expecting at least two rate cuts by the end of the year potentially weighing on the greenback further. The outlook for the USD remains neutral/bearish.
CAD:
On the CAD side, the Canadian labour market report on Friday didn’t change anything for the BoC. In fact, despite the headline employment change beating expectations, wage growth moderated and the unemployment rate increased (although that came with an increase in the participation rate). Overall, it was a good report but not something that would change the BoC’s stance.
As a reminder, the BoC held interest rates steady at the last policy meeting 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 last GDP and employment reports despite acknowledging the improvements.
The last Canadian inflation report saw the Trimmed Mean Y/Y falling to 2.8%, 0.1% lower than consensus and 0.2% than the prior month. That led to a slightly dovish repricing in interest rate expectations. The market now sees a total of 11 bps of tightening by year-end. The outlook for the CAD remains neutral/bullish.
USDCAD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDCAD squeezed higher into the 1.39 handle and it’s now pulling back following the DOJ news. The sellers stepped in at the 1.39 resistance with a defined risk above it to position for a pullback to the 1.38 handle. The buyers, on the other hand, will have a better risk to reward setup around the 1.38 support to target the 1.41 level next.
USDCAD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can see that we have an upward trendline defining the bullish momentum. The buyers will likely lean on the trendline with a defined risk below it to keep pushing into new highs. The sellers, on the other hand, will look for a break lower to increase the bearish bets into the 1.38 support next.
USDCAD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see that we have another minor downward trendline defining the current pullback into the major trendline. The buyers will have a better risk to reward setup around the major trendline and will likely increase the bullish bets on a break above the minor counter-trendline. The sellers, on the other hand, will keep on leaning on the minor downward trendline to keep pushing into new lows targeting a break below the major trendline. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Tomorrow we have the US CPI report. On Wednesday, we get the November US Retail Sales and US PPI reports, so it’s going to be old data. We also have a potential US Supreme Court decision on Trump’s tariffs. On Thursday, we get the latest US Jobless Claims figures.
