USDCAD Technical Analysis – Breakout or fakeout?

US

• The Fed left interest rates unchanged as
  expected with basically no change to the statement.
• Fed Chair Powell stressed
  once again that they are proceeding carefully as the full effects of policy
  tightening have yet to be felt.
• The US Core PCE last
  week came in line with expectations.
• The labour market remains
  pretty resilient but we are starting to see some weakness as Jobless Claims missed
  expectations once again this week with Continuing Claims now rising at a fast
  pace.
• The US Consumer
  Confidence fell for the third consecutive month
  although the data beat expectations.
• The US ISM
  Manufacturing PMI this week missed expectations by a big
  margin.
• The market doesn’t expect the Fed to hike anymore.

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 less hawkish speech in
  the press conference compared to his previous remarks.
• The recent Canadian CPI missed expectations across the
  board and the underlying inflation measures eased, which was a welcome
  development for the BoC.
• On the labour market side, the last
  report beat expectations and showed another uptick in wage growth, which is something that Governor
  Macklem said the BoC is watching carefully.
• The market doesn’t expect the BoC to
  hike anymore.

USDCAD Technical Analysis –
Daily Timeframe

On the daily chart, we can see that the USDCAD has
been diverging with the
MACD trading
into the key 1.3862 resistance. This is
generally a sign of weakening momentum often followed by pullbacks or
reversals. In this case, the price sold off and it even broke below the bottom trendline. This is
a bad omen for the buyers as it opened the door for a bigger drop into the
major trendline around the 1.36 handle. If the price gets there, we can expect
the buyers to step in more aggressively as they will have a much better risk to
reward setup.

USDCAD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can see more clearly the
breakout of the trendline yesterday with the price now consolidating around the
support zone. The sellers are likely to keep piling in as long as the price
stays below the broken trendline and target the 1.36 handle. The buyers, on the
other hand, will want to see the price rallying back above the broken trendline
to leave behind a fakeout and start targeting a new high.

USDCAD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that from
a risk management perspective, the sellers would be better off shorting from
the downward trendline where they will find the confluence with
the broken trendline and the red 21 moving average. The
buyers, on the other hand, will want to see the price breaking higher to
invalidate the bearish setup and position for new highs.

Upcoming Events

Today, we conclude the week with the US NFP report,
the Canadian Labour Market data and the ISM Services PMI.