After the big USD weakness after the US CPI report was missed, we saw the dollar bounce back again as the US data continued to surprise to the upside. Actually, US Retail Sales Review Group exceed expectations by a wide margin and Initial US Claims fell to a record low. In addition, US PMI showed a mixed picture yesterday with services PMI missing expectations but manufacturing PMI jumping from 46.2 to 49.0. As long as we continue to see good data for the US and the labor market remains strong, we are likely to see more rate hikes from the Fed.

On the other hand, BoC raised rates by 25 bps as expected, as the central bank does not like persistently high core inflation with a tight labor market. In fact, BoC Governor Macklem said the Bank of Canada is poised to raise rates further, as if it hasn’t done enough now, it will likely have to do more later. Recent Canadian Core Inflation data exceeded expectations in all indicators but Canadian retail sales missed on the whole line. Overall, it’s a mixed picture for the BoC and puts them in a tough spot.

USDCAD Technical Analysis – Daily Time Frame

On the daily chart, we can see that the price is stuck in the range between the 1.31 handle and the 1.3225 resistance. The recent rejection from the 1.3225 level and the red moving average of 21 suggests that we may be in for another test of the 1.3100 support. If USDCAD breaks below the 1.31 handle, we should see more sellers pile in and extend the decline to the 1.30 handle. On the downside, buyers will need the price to break above the 1.3225 resistance with conviction to start targeting the 1.34 resistance.

USDCAD Technical Analysis – 4 Hour Time Frame

On the 4-hour chart, we can see that if we draw a trend line connecting the lows, we can have an ascending triangle creating patterns. Price can break on either side of such patterns, but after a breakout we can generally see a large extension in the direction of the breakout. So these levels will be key to watch.

USDCAD Technical Analysis – 1 Hour Time Frame

On the 1-hour chart, we can see that we have a short-term downtrend defined by a descending trendline and moving averages crossed downwards. This is where it should get interesting. In fact, if the price breaks above the descending trendline, buyers are likely to pile in first to target the 1.3225 resistance and the 1.34 handle after the break. Sellers, on the other hand, will want to see the price break below the uptrend line to pile up and target the 1.30 handle.

Upcoming events

Today’s highlight will be the US consumer confidence report. Earlier, the report came in well above expectations, which coupled with the lackluster US CPI report a few days ago gave the market soft landing vibes. For now, however, it looks like the strong data will give the Fed a hard time and likely push it to do more. The Fed is expected to hike by 25 bps tomorrow, and market attention will be focused on possible signs of a pause or further rate hikes. On Thursday, it will be time for the next US Jobless Claims report, where strong data should support the US dollar and weak readings should weaken it. To close out the week, we will see the latest US PCE and ECI reports on Friday, with the market likely to pay more attention to wages data given the strength in the labor market.

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