USDCAD Technical Analysis – The momentum is waning

US:

• The Fed hiked by 25 bps as
  expected and kept everything unchanged at the last meeting.
• Fed Chair Powell reaffirmed their data dependency
  and kept all the options on the table.
• Inflation measures
  since then showed further disinflation.
• The labour market
  displayed signs of softening although it remains fairly solid.
• Overall, the economic data started to surprise to
  the downside lately.
• This week the ISM Services PMI and Jobless Claims
  surprised to the upside.
• The Fed members are leaning more towards a pause in
  September rather than another rate hike.
• The market doesn’t expect the Fed to hike at the
  September meeting, but there’s now a 50/50 chance of a hike in November.

Canada:

• The BoC left interest rates at 5.00% as expected but remains prepared to
  raise rates further if needed.
• BoC Governor Macklem delivered a hawkish speech which points to another rate hike
  if the data remains strong into the next policy meeting.
• The Canadian underlying inflation
  data beat expectations on all measures for the June readings and recently we
  got another beat for the July data.
• On the labour market side, the last
  report showed that the unemployment rate increased once again, but the average hourly earnings surprised to the upside as well.
• ·The Canadian Retail Sales and GDP missed expectations
  recently pointing to a weakening economy.
• The market doesn’t expect the BoC to
  hike again.

USDCAD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that USDCAD has
reached the key 1.3664 resistance and
probed above it yesterday before falling back soon after. The sellers are
likely to pile in here with a defined risk above the resistance to target a
pullback into the upward trendline. The
buyers, on the other hand, may want to wait for the price to indeed pull back
into the trendline where there’s also the confluence with the
red 21 moving average before
positioning for a break above the 1.3664 resistance, and eventually the 1.38
handle.

USDCAD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that we continue to
have the massive divergence with the
MACD started
around the beginning of August. This is a sign of weakening momentum often
followed by pullbacks or reversals. In this case, we should see the pullback
into the trendline where we can also find the 50% Fibonacci retracement level
for further confluence. A break below the trendline would invalidate the
bullish setup and confirm a reversal, which should lead to a drop into the 1.34
handle.

USDCAD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that we
have another divergence right into the 1.3664 resistance. This is another
signal that we may be due for a pullback and a break below the minor black
trendline should confirm the correction into the major upward trendline. If the
price bounces on the minor trendline and continues higher breaking above the
resistance, then we might see the buyers jumping onboard for a rally into the
1.38 handle, although form a risk management perspective it’s a less desirable
setup.

Upcoming Events

Today we will see the latest Canadian labour market
data with the focus likely to be on the wages figure given that the BoC said
that they are closely watching wage growth. A strong report should give the CAD
a boost in the short term, while weak readings might put even more pressure on
the commodity currency.