Fundamental
Overview
The puzzling weakness in
the US Dollar following Trump’s victory looks more and more like it was just a
“sell the fact” reaction. The greenback is now back in the driving seat, and we
might have also seen some pre-positioning in the past couple of days into a
potentially hot US CPI report today.
At the latest Fed’s decision,
Fed Chair Powell said that they expect bumps on inflation and that one or two
bad data months on inflation won’t change the process. This keeps the 25 bps
cut in December in place even if we get higher inflation readings.
The market though is
forward-looking, and the rise in Treasury yields showed that the market sees
risks to the inflation outlook. Moreover, the red sweep could increase those
fears if the progress on inflation stalls, or worse, reverses.
The market might have
already assigned some premium to a higher than expected print, so there’s some
risk of a short-term “sell the fact” reaction on a higher than
expected number.
It goes without saying that
a bigger than expected upside surprise should see the momentum increasing
immediately with the US Dollar likely rallying across the board and Treasury
yields shooting higher.
On the other hand, a soft
print will likely see the US Dollar and Treasury yields falling, although one
can argue that it’s just going to provide a pullback to go long the US Dollar
and short bonds again at even better levels as future conditions will likely
see inflation getting stuck above the target or even moving back higher.
USDCAD
Technical Analysis – Daily Timeframe
USDCAD Daily
On the daily chart, we can
see that USDCAD is once again back at the 2-year high amid USD strength. The
buyers will want to see the price breaking higher to increase the bullish bets
into new highs, while the sellers will look for a rejection to position for a
drop back into the 1.38 handle.
USDCAD Technical
Analysis – 4 hour Timeframe
USDCAD 4 hour
On the 4 hour chart, we can
see that we have a strong support zone around the 1.3825 level where the price
got rejected from several times in the past weeks. We may now have a range
between the 1.3825 level and the 1.3950 level. The market participants will
continue to play the range until we get a breakout on either side.
USDCAD Technical
Analysis – 1 hour Timeframe
USDCAD 1 hour
On the 1 hour chart, there’s
not much else we can add here as the rangebound price action makes all the
technical levels between the main support and resistance zones pretty weak. The
red lines define the average daily range for today.
Upcoming
Catalysts
Today, we have the US CPI report. Tomorrow, we get the latest US Jobless
Claims figures. On Friday, we conclude the week with the US Retail Sales data.