Basic overview
The USD has been a bit weaker recently due to lower than expected US inflation figures last week which sent Treasury yields lower and caused the market to price in more opportunities height of second level cut before the end of the year.
Yesterday, the green background weakened over the table after a WSJ report says Trump would release the trade outlook but not yet impose tariffs. Tonight, however, he spoke to the media and said that he plans to impose 25% taxes on Canada and Mexico next week. After the news, the US Dollar erased almost all the losses from the previous day.
On the CAD side, as a reminder, the BoC cut interest rates by 50 bps at the last policy meeting but drop the line stating that “if the economy changes substantially in line with our latest forecast, we expect to reduce the policy rate further”, which indicates that we reached the peak in “dovishness” and the central bank will now turn to 25 bps cuts and slow the pace of easing.
Today, we have the Canadian CPI report which is expected to show some easing in core inflation. The market is pricing in an 80% chance of a 25 bps cut at the upcoming meeting and a total of 60 bps of easing by the end of the year.
USDCAD Technical Analysis – Daily Chart
USDCAD per day
On the daily chart, we can see that USDCAD broke below the main line of motion yesterday but eventually backed off when Trump talked about 25% tariffs on Canada. The sellers will want to see the price break below the transition line again to gain conviction for new levels, while the buyers will continue to enter around the lows to set up for the rally into the 2020 high around the 1.4670 level.
USDCAD Technical Analysis – 4 Hours Timeframe
USDCAD 4 hours
On the 4 hours chart, we can see that the pair continues to range between the 1.4300 support and against 1.4470. Market participants will continue to play the field until we get a breakout on both sides.
USDCAD Technical Analysis – 1 Hour Timeframe
USDCAD 1 hour
On the 1 hour chart, there isn't much else we can add here because the buyers will keep going around the bottom of the range, while the sellers will be piling up around the top. The red lines define the average daily range for today.
Catalysts to come
Today we have the Canadian CPI report. On Thursday, we get the latest US jobless claims numbers, and on Friday we finish the week with the Flash US PMIs.
