Basic Overview
The US dollar has been steadily rising against most major currencies over the past two weeks, although the catalyst behind the move has been unclear. One good argument is that most of the moves we have seen over the past 10 days have been driven by debt relief as a result of the strong yen.
Essentially, the carry trade pressure has had an impact on all other markets. Given the size of the recent appreciation of the yen and its correlation to many other markets, it seems that this may indeed be the cause.
From a monetary policy perspective, nothing has changed as the market still expects at least two rate cuts by the end of the year and sees some chances of a back-to-back cut in November.
Data continues to suggest that the US economy remains resilient with inflation slowly coming back to target. Overall, this should continue to support the soft landing narrative and be positive for overall risk sentiment.
On the other hand, the Canadian dollar has been supported against the US dollar in recent months due to risk sentiment, although recent events with the yen have strengthened the US dollar against several major currencies. On the monetary policy front, the Bank of Canada cut interest rates by 25 basis points to 4.50% as expected last week, indicating further cuts if inflation continues to decline.
USDCAD Technical Analysis – Daily Time Frame
USDCAD Daily
On the daily chart, we can see that the USD/CAD pair finally managed to break the 1.3785 resistance area and extended the rally to the key 1.3860 level. Here we can expect sellers to step in with a defined risk above the level to set the stage for another drop to the 1.36 support level. On the other hand, buyers will want to see the price break the resistance to increase bullish bets to the 1.40 level after that.
USDCAD Technical Analysis – 4-hour time frame
USDCAD 4 hours
On the 4-hour chart, we can see that we have a trend line that defines the bullish momentum. Buyers are likely to continue relying on the trend line to target a break above the resistance. On the other hand, sellers will want to see the price break below the trend line to increase bearish bets towards the 1.36 support.
USDCAD Technical Analysis – 1-Hour Timeframe
USDCAD 1 hour
On the 1-hour chart, we can see that if the price breaks below the trend line, buyers will have another opportunity to enter around the former resistance level that has now turned into support at 1.3785. A further break below this support is likely to increase the bearish momentum as sellers pile in to the support level at 1.36. The red lines mark the average daily range for the day.
Upcoming incentives
Today we have the US job openings and US consumer confidence reports. Tomorrow we have the Bank of Japan monetary policy decision, Canadian GDP, the US labor cost index and the FOMC monetary policy decision. On Thursday we get the latest US jobless claims figures, the Canadian manufacturing PMI and the US ISM manufacturing PMI. Finally, on Friday we wrap up the week with the US nonfarm payrolls report.