Fundamental Overview
The USD regained some ground in the final part of last week and extended the gains this week, although we haven’t got any meaningful catalyst for the move. Overall, we continue to range as the market is waiting for something new for the next sustained trend.
Given that the “short US dollar” is now the most crowded trade, such quick unwinding moves are natural, and it will take something meaningful to lead the market to expect more rate cuts than currently priced in and weaken the greenback further.
The Fed today is expected to keep interest rates unchanged with Waller and likely Bowman voting for a 25 bps cut. Fed Chair Powell is expected to reiterate data dependency and will likely open the door for a cut in September conditional on benign data.
On the CAD side, the underlying inflation in Canada has been rising steadily since last December and continues to hover near the upper bound of the 1-3% target range. The data out of Canada has been improving recently and the latest employment report surprised to the upside. The BoC today is expected to keep interest rates unchanged and there’s basically a 50/50 chance that we won’t see any more rate cuts this year.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD has been trading inside a range between the 1.3550 support and the 1.3800 resistance. We’ve been seeing such rangebound price action in other markets as well because we haven’t got meaningful changes in the fundamentals in the past couple of months. The market participants will likely continue to play the range by buying at support and selling at resistance until we get a breakout on either side.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, there’s not much we can glean from this timeframe as the only key levels are the lower and upper bounds of the range. Nevertheless, a break above the resistance should see the buyers extending the rally into the next major swing level at 1.3860.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have a minor upward trendline defining the current bullish momentum. The buyers will likely continue to lean on it to keep pushing into new highs, while the sellers will look for a break lower to increase the bearish bets into the lower bound of the range. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US ADP, the US Q2 GDP, the BoC rate decision and the FOMC policy announcement. Tomorrow we get the US PCE price index, the US Jobless Claims, the US Employment Cost Index and the Canadian GDP. Finally, on Friday, we conclude the week with the US NFP report and the US ISM Manufacturing PMI.
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