The failure in the US CPI report sent a significant drop in the value of the US dollar as the market cheered the lower core inflation readings and speculated that the Fed would soon make a tightening cycle. In fact, the market priced the chances of a rate hike more than once but kept the hike in July as a done deal. This could be due to a tight labor market, as we also saw with yesterday’s US jobless claims, and a lack of hints of skipping or pauses from Fed speakers after the CPI release.
On the other hand, the Bank of Canada raised interest rates by 25 basis points as expected as inflation continues to rise, especially core inflation, and the jobs market remains tight. BoC Governor McCullum said the BoC is ready to raise interest rates more as if they don’t do enough now, they will probably do more later.
Technical analysis of the USD/CAD pair – daily time frame
USDCAD daily
On the daily chart, we can see that after the first fake break below the key support level of 1.3225, the price broke lower again after the error in the US CPI report and the BoC rate hike. The 1.30 handle is now in sight and the sellers did not have strong barriers until then. The moving averages crossed again to the downside as the downtrend resumed.
Technical analysis of the USD/CAD pair – 4-hour time frame
USDCAD 4 hours
On the 4-hour chart, we can see that the correction after the fake correction ended at the 50% Fibonacci retracement level near the 1.34 handle. Since then, the price started a bearish trend as the US Nonfarm Payrolls report missed expectations and then broke below a bearish flag pattern to eventually sell after the US CPI report failed.
Technical analysis of the USD/CAD pair – 1 hour time frame
USDCAD 1 hour
On the hourly chart, we can see that we have a nice resistance area near level 1.3135 where we have the confluence of the 38.2% Fibonacci retracement level, the moving average, and the trend line. Sellers are likely to step in here, with risks identified above the trend line, targeting the 1.30 handle. On the other hand, buyers will want to see the price break higher to accumulate and target 1.3225 resistance.
Upcoming events
Today we have the Consumer Sentiment Report from the University of Michigan. The market is likely to move only if there are significant deviations from the expected numbers and is likely to focus particularly on inflation expectations data.
Also see the video below:
