Time for a Deeper Pullback: Technical Analysis of USD/CAD

USDCAD Fundamental Analysis

US

• The Fed left interest rates unchanged as
  expected at the last meeting.
• The macroeconomic projections were revised higher,
  and the Dot Plot showed that the FOMC still expects another rate hike by the
  end of the year with less rate cuts projected in 2024.
• Fed Chair Powell
  reaffirmed their data dependency but added that they will proceed carefully.
• The US Core PCE last
  week came in line with expectations, so the market’s pricing barely changed.
• The labour market remains
  pretty resilient but we are starting to see some weakness as Continuing Claims missed
  expectations once again last week pointing to an upward trend.
• The US Retail Sales
  recently beat expectations by a big margin with positive revisions to the prior
  figures, suggesting the consumers’ spending remains solid.
• The recent US PMIs showed
  that the economy now looks more balanced.
• Fed Chair Powelland other FOMC members continue
  to highlight
  the rise in long term yields as doing the job for the Fed and therefore they
  are expected to keep rates steady this week.
• 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 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 pair
reached the key 1.3862 resistance level
and got rejected as the sellers stepped in with a defined risk above it to
target a drop into the bottom trendline. We can
notice that we had a divergence with the
MACD right at
the resistance which is generally a sign of weakening momentum often followed
by pullbacks or reversals. In this case, we should get at least a pullback into
the bottom trendline around the 1.3750 level where we will also find the red 21
moving average for confluence.

USDCAD Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that from a risk
management perspective, the buyers would be better off waiting for the price to
fall into the support zone around the 1.3750 level where we can find the
confluence of the trendline and the 38.2% Fibonacci retracement level.
The sellers, on the other hand, will want to see the price breaking lower to
increase the bearish bets into the next major trendline around the 1.36 handle.

USDCAD Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that we
had another divergence with the MACD signalling a possible pullback right at
the resistance. If the price breaks through the recent low around the 1.3812,
we can expect more sellers piling in and targeting the 1.3750 support zone.

Upcoming Events

This week, we will get lots of tier one data points with
the US labour market and the FOMC decision in focus. Today, we have the US
Employment Cost Index and the Consumer Confidence report. Tomorrow, it will be
the time for the US ADP, the ISM Manufacturing PMI, the Job Openings data and
the FOMC rate decision. On Thursday we will have the US Jobless Claims data,
while on Friday we conclude the week with the US NFP report, the Canadian
Labour Market data and the ISM Services PMI.

See the video below