Fundamental
Overview
The USD has weakened pretty
much across the board last week despite a strong US ADP and ISM Services PMI. As mentioned previously, when
markets react like that it’s generally a signal of a short-term top with the
market needing more to keep the trend going.
In fact, the market pricing
is now showing a 63% probability of a December cut, which is about right. The
NFP and CPI reports will have the final say, and we should get them before the
next FOMC decision.
On the CAD side, the BoC
cut interest rates by 25 bps at the last meeting as expected bringing the
policy rate to the lower bound of their estimated neutral rate range of
2.25%-3.25%. The central bank has also signalled that they reached the end of
their cutting cycle, although they kept the door open for another cut if
needed.
On Friday, we got another
strong Canadian
employment report with a notable fall in the unemployment rate from 7.1% to
6.9%. The data didn’t change anything for the BoC as the central bank won’t cut
or hike at this point but helped to trim rate cut expectations further with the
market now seeing just a 36% probability of another cut by the end of 2026.
USDCAD
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that USDCAD broke below the 1.4080 level following the strong Canadian
employment report. The sellers piled in on the break and will likely target the
trendline around the 1.3950 level. If we get there, we can expect the buyers to
lean on the trendline with a defined risk below it to position for a rally into
a new high.
USDCAD Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that we are trading right in the middle of the two key levels, so there’s
no strong level where to lean onto. If we get a pullback into the 1.4080 level,
we can expect the sellers to step in with a defined risk above the level to
position for a drop into the trendline. The buyers, on the other hand, will
want to see the price breaking higher to pile in for a rally into new highs.
USDCAD Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we have a counter-trendline acting as support. The buyers will likely
continue to lean on it to keep pushing into new highs with a defined risk below
it. The sellers, on the other hand, will look for a break lower to increase the
bearish bets into the major trendline. The red lines define the average daily range for today.
Upcoming Catalysts
This week is pretty empty on the data front as we just have the weekly US ADP
data tomorrow.
This article was written by Giuseppe Dellamotta at investinglive.com.