USDCAD Technical Analysis - Back at highs ahead of US CPI

Basic overview

The US Dollar is still consolidating around the highs although it is stronger against commodity currencies. In the bigger picture, the market reached a peak in interest rate repricing, and stronger reasons will be needed to price the remaining rate cuts for 2025.

In fact, despite a lot of strong data from the US, the market is still pricing in around three rate cuts by the end of 2025. The focus is now on the US CPI report due tomorrow. It seems the Fed really wants to cut next week before pausing for several months. Therefore, we may need an upside surprise in the headline inflation numbers to make them change plans.

Even if the Fed decides to cut next week despite a hot CPI, the market is likely to ease further with the rate cut expectations for 2025 and that could slightly risk disruption caused by the general accumulation of the US Dollar. The best conditions would be a soft report with the conditions far too far behind the green. In such a case, we can expect the US Dollar to sell across the board.

On the CAD side, the BoC is expected this week to cut interest rates by 50 bps bringing the policy rate to 3.25%. Market expectations kept going back and forth between 25 and 50 bps in the past weeks as we got a higher than expected rate. CPI report that strengthened the odds for a 25 bps cut, but then weaker than expected GDP report we brought the odds back to basically a 50-50 position. The soft labor market report Friday though he sealed the deal for a 50 bps cut.

USDCAD Technical Analysis – Daily Chart

USDCAD per day

On the daily chart, we can see that USDCAD rallied back to higher levels as the market increased the chances of a 50 bps cut for the BoC after the latest Canadian earnings report. From a risk management perspective, customers will have a better risk to reward position around the line of motion. On the other hand, the sellers are likely to enter around these levels to set up for a pullback into the trend line.

USDCAD Technical Analysis – 4 Hours Timeframe

USDCAD 4 hours

On the table 4 hours, we see that we are good support zone around the handle 1.41. If the price were to pull back into it, we can expect buyers to step in with marked risk below the support to rally for a rally to new highs. The sellers, on the other hand, look for a lower break to increase the bearish bets into the trend line.

USDCAD Technical Analysis – 1 Hour Timeframe

USDCAD 1 hour

On the 1 hour chart, we can see that we have a small trend line up defining the current bullish trend. It is likely that the buyers will continue to aim for new highs, while the sellers will look for a lower break for a position to fall into the 1.41 support. The red lines define the average daily range for today.