Basic overview
The US dollar has strengthened significantly since Fed Chairman Jerome Powell adopted a more hawkish tone at the last FOMC press conference. This shift was fueled by rising expectations of interest rate hikes, which supported the dollar as US bond yields climbed.
On Wednesday, some impressive economic data emerged from the US. The ADP report was better than anticipated, the ISM Services PMI far exceeded expectations, and price indexes reached new cycle highs.
However, despite this encouraging information, the dollar couldn’t push its gains further. This might indicate a short-term ceiling, showing that the market still needs more demand to sustain the trend. Currently, market indicators suggest a 65% probability of a rate cut in December, which feels about right. The final December numbers will likely be pivotal, but there’s hope to receive the NFP and CPI reports before the next FOMC meeting.
Turning to Canada, the central bank recently cut rates by 25 basis points as anticipated, lowering the policy rate to the lower end of the 2.25% to 3.25% neutral rate range. They also indicated that they’ve likely reached the endpoint of this rate-cutting cycle, although they haven’t ruled out further cuts if necessary.
The statement elaborated, saying, “If inflation and economic activity remain broadly in line with the October outlook, the Board believes current policy rates are roughly suitable to support the economy during this structural adjustment and keep inflation around 2 percent. Should the outlook shift, we are prepared to act. The Board will evaluate incoming data against the Bank’s projections.”
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, USDCAD appears to be consolidating above recent highs, around the 1.4080 mark. Buyers might continue to step in at these levels, although there are clear risks if the price drops below 1.4080, as it could lead to targeting the next level at 1.4295. Conversely, sellers will be watching for a drop beneath the 1.4080 threshold, potentially leading to a pullback towards the trendline near 1.3950.
USDCAD Technical Analysis – 4 Hour Timeframe
The 4-hour chart reveals clearer consolidation above the 1.4080 level. There isn’t much additional insight here. Buyers are likely to accumulate near 1.4080, with the risk of falling below that point pushing toward new highs, while sellers will be eyeing a downward break towards the major trendline.
USDCAD Technical Analysis – 1 Hour Timeframe
Examining the hourly chart, the 1.4140 level is establishing itself as new resistance. A further push towards this level could see sellers stepping in, creating a distinct risk of a pullback to or below the major trendline. Meanwhile, buyers are keen on exceeding this level to reinforce their bullish positions.
Future catalyst
As we close the week, Canadian employment data and the University of Michigan Consumer Confidence Report are on the agenda.
