US:
- The Fed hiked by 25 bps as expected and kept everything unchanged at the last meeting.
- ·Fed Chair Powell reaffirmed their data dependency and kept all the options on the table.
- Inflation measures since then showed further disinflation.
- The labour market displayed signs of softening although it remains fairly tight.
- Overall, the economic data started to surprise to the downside lately.
- The Fed members are leaning more towards a pause rather than another rate hike.
- The market doesn’t expect the Fed to hike anymore.
Canada:
- The BoC hiked rates by 25 bps as expected at the last meeting as the central bank doesn’t like the persistently high underlying inflation with a tight labour market.
- In the recently released Meeting Minutes the BoC seems less in a rush to hike rates again.
- The Canadian underlying inflation data beat expectations on all measures for the June readings and recently we got another beat for the July data.
- On the labour market side, the last report showed that the unemployment rate increased once again, but the average hourly earnings surprised to the upside as well.
- The Canadian Retail Sales and GDP missed expectations recently pointing to a weakening economy.
- The market expects the BoC to keep interest rates unchanged tomorrow.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD recently bounced on the previous swing high level where we had also the confluence with the red 21 moving average. The buyers are now targeting the 1.3664 resistance and a break above it would open the door for a move into the 1.3862 level. The 1.3664 level has proved to be very strong in the past, so we can expect at least a correction from there as the sellers are likely to step in with a defined risk above it to target the 1.3553 support.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the divergence with the MACD continues. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we only got pullbacks, but the risk of a reversal is still there. We might even see the pair trading higher into the BoC rate decision and then “selling the fact” with the USDCAD falling into the 1.3553 support.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another divergence right when the price is extending towards the key 1.3664 resistance. The first support on a pullback should be around the 1.3577 level where we can expect the buyers to pile in again for another push to the upside. The sellers, on the other hand, will want to see the price breaking lower before piling in and extend the fall into the 1.35 handle.
Upcoming Events
This week is a bit empty on the data front but we will have some key economic releases and the BoC policy decision. In fact, tomorrow we will see the latest US ISM Services PMI and the BoC policy decision where the central bank is expected to keep interest rates unchanged. On Thursday, it will be the time for another US Jobless Claims report where worse than expected readings should weigh on the USD in the short term and better than expected ones should strengthen it. Finally, on Friday, we will get the latest Canadian Jobs report.
