The USD weakened across the
board last week due to a more dovish than expected FOMC decision last week where
the Fed decided to signal a bigger QT taper beginning in June and the Fed Chair
Powell pushing back repeatedly against rate hike expectations. Moreover, the data on Friday showed that the Fed might indeed
just keep rates higher for longer as job and wage growth soften. Nevertheless, the USD has been in the dirving seat this week despite the lack of economic data or major changes in the fundamentals.
The CAD, on the other hand, might have been under pressure due to the sustained weakness in crude oil prices and expectations building for the BOC to cut rates in June, although the employment data on Friday and the Canadian CPI report on May 21st will likely decide if the BOC will wait until July or proceed with a cut already in June.
USDCAD
Technical Analysis – Daily Timeframe
USDCAD Daily
On the daily
chart, we can see that USDCAD has been rallying steadily since the US NFP
report. The reasons for the rally are unclear as the only thing that changed is
the market pricing in two rate cuts for the Fed after the Friday’s data
release. Nevertheless, the pair remains in an uptrend as the price bounced on
the key support zone around the 1.36 handle where we had also the confluence of
the trendline and the 61.8% Fibonacci retracement level. The target for the
buyers should be the cycle highs around the 1.39 handle, while the sellers will
need a break below the trendline to start positioning for a drop back into the
1.32 handle.
USDCAD
Technical Analysis – 1 hour Timeframe
USDCAD 1 hour
On the 1 hour
chart, we can see that have a clear uptrend on this timeframe with the price
printing higher highs and higher lows. From a risk management perspective
though, the buyers will have a much better risk to reward setup around the
trendline. The sellers, on the other hand, will want to see the price breaking
to the downside to invalidate the bullish trend and position for a drop into
the 1.36 support.
Upcoming
Catalysts
Tomorrow we get the latest US Jobless Claims figures while on
Friday we conclude the week with the Canadian jobs data and the University of
Michigan consumer sentiment survey. A lower wage growth figure coupled with another
uptick in the unemployment rate will likely weigh a lot on the Canadian Dollar.
Conversely data mostly in line with expectations or a bit better shouldn’t
change much, although the market might place more probability for a July cut
rather than for the June one.