Fundamental
Overview
Last week, the Fed finally started its easing cycle and decided to do it with a 50 bps
cut. The market was already leaning towards a 50 bps move, so it wasn’t a
surprise.
The larger cut was framed
as kind of a risk management move with the dot plot showing two more 25 bps
cuts by the end of the year and less than the market expected in 2025.
The US Dollar didn’t get a
boost despite the rise in Treasury yields as the market might be focusing more
on global growth expectations. Now that the decision is behind us though, the
focus will be on the economic data.
If we start to see an
improvement, then Treasury yields will likely continue to rise and lead to a
reprising in the dovish expectations potentially supporting the greenback in
the short-term.
Conversely, if the data
weakens, the market will likely go ahead with expecting more 50 bps cuts by
year-end and weighing on the US Dollar.
On the CAD side, the latest
soft Canadian CPI raised the probabilities for a 50
bps cut at the upcoming meeting as BoC’s Macklem hinted to a possibility of
delivering larger cuts in case growth and inflation were to weaken more than
expected. The market sees a 58% probability for such a move.
USDCAD
Technical Analysis – Daily Timeframe
USDCAD Daily
On the daily chart, we can
see that USDCAD probed above the key resistance around the 1.36 handle but
eventually got smacked back down. The sellers increase the bearish bets yesterday
as we got a breakout on the lower timeframes from a two-week long range.
The target should now be
the 1.34 handle. The buyers, on the other hand, will likely step in around the
1.34 handle to position for a rally back into the 1.36 resistance.
USDCAD Technical
Analysis – 4 hour Timeframe
USDCAD 4 hour
On the 4 hour chart, we can
see the breakout of the two-week long range yesterday and the increase in the
bearish momentum. If we get a pullback, the sellers will likely lean on the trendline
to position for the continuation of the downtrend. The buyers, on the other
hand, will want to see the price breaking higher to pile in for a rally into
the 1.36 resistance.
USDCAD Technical
Analysis – 1 hour Timeframe
USDCAD 1 hour
On the 1 hour chart, we can
see that we have a strong resistance zone around the 1.3550 level where we can
find the confluence
of the previous swing low level, the 61.8% Fibonacci
retracement level and the trendline.
The sellers will likely pile
in there to position for more downside, while the buyers will look for a break
to the upside to target a rally into the 1.36 handle. The red lines define the average daily range for today.
Upcoming
Catalysts
Today we have the US Consumer Confidence report. On Thursday, we get the
latest US Jobless Claims figures. On Friday, we conclude the week with the Canadian
GDP and the US PCE.