fundamental overview
USD:
The US dollar skyrocketed late last week as prospects for an early end to the war dimmed and oil resumed its rally towards triple-digit levels. Traders continue to bet on rate cuts amid rising energy prices.
On Wednesday, we have the FOMC policy decision where the central bank is expected to keep interest rates unchanged, with Meeran, Waller and Bowman likely to dissent in favor of a rate cut. In this meeting we will also get a summary and dot plot of economic projections.
The Fed is likely to revise growth forecasts lower while upgrading inflation expectations. The average dot plot should remain unchanged with the expectation of a rate cut by the end of the year. Overall, the central bank may emphasize patience but maintain an accommodative stance amid the US-Iran war.
CAD:
On the CAD side, economic data has been surprisingly on the downside, and last Friday we got a very weak jobs report. In such a case, we would see traders pricing in a rate cut for the BOC, but given the US-Iran war and rising energy prices, the market is expecting about two rate hikes by the end of the year.
On Wednesday, we have the Bank of Canada policy decision where the central bank is expected to keep interest rates unchanged amid geopolitical uncertainty. However, given the risks to growth, the BoC may reject market-based interest rate expectations, which could have an impact on the CAD.
Today, we received the Canadian CPI report. As always, the focus will be mainly on the trimmed mean CPI y/y which is expected to be 2.3% as against 2.4% earlier. Given the focus on the US-Iran war, there may not be much change in the data for the market.
USDCAD Technical Analysis – Daily Time Frame
USDCAD – Daily
On the daily chart, we can see that USDCAD has been trading in a wide range since February and the price recently rose to resistance around the 1.3750 level. This is where we can expect sellers to make a move with a defined risk above the resistance to a downside position at 1.3550 support. On the other hand, buyers will look for a breakout to extend the bullish bets to the 1.39 handle next.
USDCAD Technical Analysis – 4 Hour Time Frame
USDCAD – 4 hours
On the 4-hour chart, we have mid-range support around the 1.3630 level. This should be the number one goal for sellers. If the price reaches there, we can expect buyers to step back into the 1.3750 resistance next with a defined risk below the support to position for a rally.
USDCAD Technical Analysis – 1 Hour Time Frame
USDCAD – 1 hour
On the 1-hour chart, we can see that the price is falling below the above trend line which was defining the bullish momentum on this time frame. From a risk management perspective, sellers would have a better risk of being rewarded for a setup around the downward counter-trendline while targeting the 1.3630 support. On the other hand, buyers would like to see the price break above the counter-trendline for a breakout above the 1.3750 resistance next. The red lines define the average daily range for today.
upcoming catalyst
Today we got the Canadian CPI report. On Wednesday, we have the BOC policy decision, the US PPI report and the FOMC policy decision. On Thursday, we will get the latest US jobless claims data. The focus remains on the US-Iran war, so keep an eye on the headlines, especially those related to the Strait of Hormuz.
