USDCAD Technical Analysis: Genuine 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.