FUNDAMENTAL
OVERVIEW
USD:
The US Dollar spiked higher
yesterday following a strong US NFP report as the market pared back slightly
Fed rate cut bets but surprisingly gave back all the gains. Maybe the market is
still too convinced of more labour market weakness to come, or it decided to
wait for the US CPI. Whatever the reason, the data since the start of the year has
been clearly pointing to improving conditions that do not justify further rate
cuts.
The focus now turns to the
US CPI report coming up tomorrow. If we get hot data, I can’t see how the
market could brush that off like it did with the NFP. The hawkish repricing
will likely be more substantial and trigger a more sustained rally in the greenback.
On the other hand, soft data shouldn’t change much in terms of market pricing
but could keep the dollar under pressure.
CAD:
On the CAD side, the
currency weakened yesterday following a Bloomberg
report saying that US President Trump was privately weighing quitting the
USMCA deal. Canada maintains generally low tariffs on most US goods due to
USMCA, so if Trump were to exit the trade pact, tariffs for Canada would rise
substantially and negatively affect the economy.
Bloomberg added that “the
president has asked aides why he shouldn’t withdraw from the agreement, although
he has stopped short of flatly signalling that he will do so”. For the CAD, the
USMCA negotiations remain key, so negative or positive news on that front will
continue to move the currency.
On the monetary policy
front, the BoC remains in a neutral stance with the market not pricing any move
through year-end. The economic data has been supportive of such stance with the
labour market stabilising and core inflation hovering a bit above the 2.5%
mid-point of the BoC 2-3% target range.
USDCAD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that USDCAD probed below the 2025 low two times but failed to sustain a
breakout. The buyers will likely continue to step in around the lows to target
a pullback into the major trendline. The sellers, on the other hand, will look
for a break lower to increase the bearish bets into new lows.
USDCAD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we can
see the price broke above a downward trendline that was defining the bearish
momentum. This might give the buyers more conviction to keep piling in for a
pullback into the major trendline with the 1.3723 high as the first target. The
sellers, on the other hand, will look for a break below the recent low to extend
the drop into new lows.
USDCAD TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we can
see a consolidation after the USMCA news and the hot NFP report as traders await
the US CPI report coming up tomorrow. From a risk management perspective, the
buyers will have a better risk to reward setup around the 1.3550 level to
position for a rally into the 1.3723 high. The sellers, on the other hand, will
want to see the price breaking below the 1.3550 support to pile in for a drop
into new lows. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the US Jobless Claims figures, while tomorrow we conclude the
week with the US CPI report.
This article was written by Giuseppe Dellamotta at investinglive.com.