The recent positive
surprise in the non-farm payrolls (NFP) data, followed by concerning
factors such as a higher unemployment rate and reduced average weekly hours,
has had a detrimental impact on the USD. Market sentiment has shifted towards a
less optimistic stance, as investors recalibrate their previously hawkish
expectations in light of a more relaxed labour market, which has the potential
to alleviate inflationary pressures. Moreover, the underperformance in the ISM Services Purchasing Managers’
Index (PMI),
particularly in the prices paid sub-index, has further reinforced this shift
towards a less hawkish outlook. This has ignited hopes that core inflation
might experience a decline in the near future.
Regarding jobless claims, the significant deviation observed
should be taken with caution, considering the influence of seasonal
adjustments. On a positive note, continuing claims have shown even greater
improvement, suggesting that individuals are able to secure new employment relatively
quickly after being unemployed. Overall, the strong hawkish sentiment witnessed
in May, fuelled by robust economic data, has recently started to reverse. This
shift is attributed to the expressed preference of Federal Reserve members to
maintain the status quo during the upcoming Federal Open Market Committee
(FOMC) meeting, as economic data has begun to disappoint.
USDCAD Technical Analysis –
Daily Timeframe
USDCAD Daily
On the daily chart, we can see that the USDCAD
completed once again the lap rallying into the 1.3664 resistance and
falling back into the 1.3300 support. This is where the buyers are likely to
start piling in again to target the 1.3664 resistance as “playing the range”
has been the strategy since April. A break below the 1.33 support will be
significant though and we can expect the sellers starting to target a break
below the key 1.3225 level.
USDCAD Technical Analysis –
4 hour Timeframe
USDCAD 4 hour
On the 4 hour chart, we can see that since the
surprising BoC rate hike the
USDCAD pair hasn’t moved much as the price action became rangebound ahead of
the US CPI report today. We are likely to keep ranging here trading into the
CPI release, so the best strategy is to wait patiently for the news event as
the moves afterwards are likely to be big.
USDCAD Technical Analysis –
1 hour Timeframe
USDCAD 1 hour
On the 1 hour chart, we can see that since
breaking the 1.34 level, the USDCAD started to diverge with
the MACD and
the divergence became even stronger near the 1.33 level. This is generally a
sign of weakening momentum often followed by pullbacks or reversals. So, if we
pair this technical concept with today’s CPI, we should get a more clearer
trading setup. A break above the 1.34 handle should give the buyers conviction
to target once again the 1.3664 resistance, while a break below the 1.33
support would give the sellers strength to target the 1.3225 level first and
eventually a breakout.
Lots of significant events this week, starting off with the release of the US CPI
report today. This report is expected to heavily influence expectations for
tomorrow’s FOMC rate decision and further out. If the CPI data falls short of
expectations across the board, we could witness a selloff in the USDCAD pair.
Conversely, if the CPI outperforms predictions on all fronts, we may experience
a big rally. The market is likely to place greater emphasis on the Core CPI,
making it the most crucial measure to monitor.
Later in the week, we have
the Jobless Claims report and the University of Michigan consumer sentiment
survey. The previous release of the consumer sentiment survey made quite an
impact on the market, particularly due to a significant surge in long-term
inflation expectations. Therefore, if this survey disappoints, it would be welcomed
news for USDCAD bears.