FUNDAMENTAL OVERVIEW
USD:
The US dollar skyrocketed in the final part of last week as prospects of a quick end to the war faded and oil resumed the rally towards triple digit levels. Traders continue to price out the rate cut bets amid surging energy prices.
On Wednesday, we have the FOMC policy decision where the central bank is expected to keep interest rates unchanged with Miran, Waller and Bowman likely dissenting in favour of a rate cut. At this meeting, we will also get the Summary of Economic Projections and the Dot Plot.
The Fed is likely to revise growth forecasts lower, while upgrading inflation estimates. The median Dot Plot should remain unchanged with one rate cut expected by year-end. Overall, the central bank is likely to stress patience amid the US-Iran war but maintain an easing bias.
CAD:
On the CAD side, the economic data has been surprising to the downside, and last Friday we got a very weak jobs report. In such a case, we would see traders pricing in rate cuts for the BoC but given the US-Iran war and the surging energy prices, the market is expecting almost two rate hikes by the end of the year.
On Wednesday, we have the Bank of Canada policy decision where the central bank is expected to keep interest rates unchanged amid the geopolitical uncertainty. The BoC might dismiss market-based interest rates expectations given the risks to growth though, which could weigh on the CAD.
Today, we get the Canadian CPI report. As usual, the focus will be mainly on the Trimmed Mean CPI Y/Y which is expected at 2.3% vs 2.4% prior. The data might not change much for the market given the focus on the US-Iran war.
USDCAD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that USDCAD has been trading in a wide range since February and the price recently surged all the way back to the resistance around the 1.3750 level. This is where we can expect the sellers to step in with a defined risk above the resistance to position for a drop back into the 1.3550 support. The buyers, on the other hand, will look for a breakout to increase the bullish bets into the 1.39 handle next.
USDCAD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have a mid-range support around the 1.3630 level. That should be the first target for the sellers. If the price gets there, we can expect the buyers to step in with a defined risk below the support to position for a rally back into the 1.3750 resistance next.
USDCAD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can see the price is breaking below the upward trendline that was defining the bullish momentum on this timeframe. From a risk management perspective, the sellers would have a better risk to reward setup around the downward counter-trendline to keep targeting the 1.3630 support. The buyers, on the other hand, will want to see the price breaking above the counter-trendline to position for a breakout above the 1.3750 resistance next. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the Canadian CPI report. On Wednesday, we have the BoC policy decision, the US PPI report and the FOMC policy decision. On Thursday, we get the latest US Jobless Claims figures. The focus remains on the US-Iran war, so keep an eye on the headlines, especially those regarding the Strait of Hormuz.
