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.
- The US CPI yesterday came in line with expectations, so the market’s pricing remained roughly the same.
- The labour market displayed signs of softening although it remains fairly solid.
- Last week the ISM Services PMI and Jobless Claims surprised to the upside, which point to a resilient economy overall.
- Yesterday, we got yet another beat in Jobless Claims followed by strong Retail Sales and PPI data.
- The Fed members are leaning more towards a pause in September and the next decision will still be dictated by the economic data.
- The market doesn’t expect the Fed to hike at the September meeting and there’s just a 33% chance of a hike in November, although that can change if the data keeps on running hot.
Canada:
- The BoC left interest rates at 5.00% as expected but remains prepared to raise rates further if needed.
- BoC Governor Macklem delivered a hawkish speech which points to another rate hike if the data remains strong into the next policy meeting.
- 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 recent report showed another uptick in wage growth and this is something that Governor Macklem said the BoC is watching carefully.
- The market doesn’t expect the BoC to hike again, but we still have lots of data before the next meeting.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD finally pulled back all the way down to the key swing level at 1.3489 following another uptick in the Canadian wage growth data. The moving averages have crossed to the downside, so it might be an early sign that the trend is changing, but the price has not made a new lower low, so the market structure remains bullish.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that after the massive divergence with the MACD since the beginning of August, we finally got a proper pullback. This swing level at 1.3489 is key because a break below it would switch the trend from bullish to bearish and open the door for a fall into the 1.33 handle. In fact, we can expect the buyers stepping in here with a defined risk below the swing level to target a new high. The sellers, on the other hand, will want to see the price breaking lower to pile in even more and target the 1.33 handle.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we have another divergence with the MACD right at the key swing level. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, we either get a pullback into the 1.3520 resistance where we can also find the downward trendline or a reversal in case the price breaks above the trendline. In the first scenario the sellers are likely to lean on the resistance to position for a break below the support with a tight risk above the trendline. In the second option, the buyers are likely to pile in once the price breaks above the trendline and target a new high.
Upcoming Events
Today the only notable report left to be released for this week is the University of Michigan Consumer sentiment survey. Consumer sentiment might have deteriorated given higher energy prices and that might have filtered to higher inflation expectations.
