USD/CAD

Thanks to ongoing risk-on and reflationary trades, stock and crude oil markets extended their gains on Thursday, while safe-haven Japanese yen and gold sold off. The USD/JPY was among the best USD pairs, while other yen pairs also rallied – most notably, the GBP/JPY thanks to a hawkish Bank of England. Investors are now looking ahead to the publication of US jobs report on Friday. But we will also have the Canadian employment report released at the same time. So, the USD/CAD could be an interesting pair to watch when the reports are released. However, with the JPY selling off, I am keen to keep the focus on the yen pairs for now. Among them, the CAD/JPY is the next one to watch for a possible breakout, with the CAD finding good support from ongoing crude oil rally. A potentially stronger-than-expected Canadian employment report on Friday could be the trigger for a bigger rally. Before we discuss the CAD/JPY, lets discuss the GBP/JPY first. The latter staged a nice rally on Thursday rally from the support area shown on the chart after the Bank of England was less dovish than expected, causing the pound to rally across the board on Thursday. But with Brexit being avoided last month and the UK vaccinating more than 10 million people, the path of least resistance was always going to be to the upside for the GBP/JPY. So, I think more gains will follow for this pair. Luckily, the ledges in the private group got on board the rally before it took off as you can see from the before/after charts: Source: TradingCandles.com and TradingView.comSource: TradingCandles.com and TradingView.com Source: TradingCandles.com and TradingView.com I have shared the GBP/JPY trade setup that I posed to the private group, because the CAD/JPY is showing a similar setup as you will see below. The CAD/JPY has in fact started to move above the key resistance zone in the 81.50-82.10 range – and area which is now potentially going to be support: Source: TradingCandles.com and TradingView.com From here, the CAD/JPY could rise towards the point of origin of the initial breakdown in February 2020, at around 82.70 to 83.00, before potentially taking out the 2020 high at 84.75 next. It is important therefore that the bulls manage to defend the above support area for price to maintain its bullish bias and attract fresh buying as rates make higher highs and higher lows. The private group has been informed exactly how we are going to trade this setup.

The pound’s rally stalled after Britain’s core CPI dropped below 3% in September. The pair’s recovery has picked up the pace after a close above the daily resistance at 1.3730. 1.3900 is the main hurdle and a bullish breakout would resume the uptrend. However, the RSI’s triple top in the overbought area indicates an overextension. A pullback is necessary to let the bulls consolidate their gains. The supply-turned-demand zone around 1.3710 is the first level to watch for. Its breach may trigger more profit-takings towards 1.3630. USDCAD sell-off continues The Canadian dollar rallied after solid inflation data in September. The US dollar has found little buying interest near July’s lows (1.2310). A bullish RSI divergence out of the oversold area suggests a deceleration in the downward momentum. But buyers need confirmation of a reversal, and a break above 1.2370 would be the first step to force sellers to cover. The Canadian dollar rallied after solid inflation data in September. The US dollar has found little buying interest near July’s lows (1.2310). Sentiment remains bearish unless the pair lifts offers around 1.2500. Failing that, the greenback could be vulnerable to a new round of sell-off towards 1.2250. USOIL gains support WTI crude bounced back after the EIA reported a surprise drop in US inventories. A previous double top had indicated potential exhaustion as the price struggled to achieve a higher high. However, the price has found support at 81.00 as buyers were eager to stake in at a better price. Overall sentiment remains upbeat and a close above at 83.80 may trigger an extended rally to 86.00. An overbought RSI may temporarily limit the momentum. But as long as the price is above the said support the directional bias stays bullish.

Summary: The Euro claws back marginally against the USD. UK CPI inflation data knocks the Pound Sterling against both the Euro and The USD. USD/CAD bearish. Read next: (EUR/USD, EUR/GBP) Euro Strengthens In The Wake Of Villeroys Comments On Monday, (AUD/JPY), (GBP/USD) Pound Sterling Showing Strength - Good Morning Forex!  EUR showing signs of potential recovery Market sentiment for this currency pair is showing bullish signals on Wednesday. The Euro gained 1.1% on the USD overnight, however it lost more than 0.3% during the trading day on Wednesday. In general, investor confidence has been returning to the market, this has been helped by the fact that U.S retail sales rose in April. It seems as though the Fed will continue to tighten monetary policy in conjunction with expectations that the European Central Bank (ECB) will turn hawkish after representative Klaas Knot suggested an interest rate hike is on the table. EUR/USD Price Chart UKs CPI Inflation knocks the Pound Sterling The market sentiment for this currency pair is showing bearish signals. The Euro has gained on the GBP after UKs headline CPI inflation rate came out at 9% for April, which beat market expectations, however is still up 2% from March. The most recent data for the UK economy did not shock the markets, therefore, the long-term effect of this data is unlikely to have a big effect on the Pound Sterling. At the last policy-setting meeting, the Bank of England (BoE) pushed interest rates up by 1%, the recent CPI inflation data suggests that the BoE will likely need to continue tightening their monetary policy. EUR/GBP Price Chart USD/CAD currency pair The USD/CAD currency pair is signalling bearish market sentiment, this bearish sentiment is not expected to continue for long in the future. With the hawkish Fed fighting inflation, the USD is expected to get stronger going forward. USD/CAD Price Chart Pound Sterling loses to the US Dollar The market sentiment is showing bullish signals for this currency pair, however the GBP has weakened against the USD on Wednesday. The weakening of the Pound Sterling comes after the release of CPI inflation data. GBP/USD Price Chart Read next: (EUR/USD, EUR/GBP, EUR/CHF) ECBs Hint To Raise Interest Rates Offers Some Relief For The Euro - Good Morning Forex!  Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com

Summary: The market sentiment for the EUR/USD currency pair turns mixed. Inflation and economic data weighing on the GBP. BoJ continues to fight rising interest rates. AUD strengthens amidst favourable unemployment data. The market seems to be favouring the Euro for a change The market is signalling mixed market sentiment for this currency pair. The U.S dollar lost ground to the EUR during Thursdays early trading, however, the demand for the safe-haven asset remains steady due to investor risk sentiment still being fragile. Earlier this week the Fed announced they would push interest rates as high as necessary to fight the surging inflation. On Thursday the market is waiting for the minutes from the latest European Central Bank (ECB) meeting to be released, hoping there will be an indication of a tightening in monetary policy. Read next: (EUR/USD) Hopes Of A Hawkish ECB Shows Favour To The Euro, (EUR/GBP) UK CPI Inflation Data Knocks The Pound Sterling - Good Morning Forex!  This begs the question: despite the Fed's already hawkish monetary policy, why is the market not pricing in much for the hawkish Fed, but pricing in a lot for the European Central Bank (ECB) ? EUR/USD Price Chart BoE and ECB expected to raise interest rates The market is reflecting a mixed market sentiment on Thursday. Earlier in the trading week, UK economic data releases weighted on the value of the Pound Sterling, global investor sentiment and the current equity bear market are both aspects that could mean further losses for the GBP. Earlier on in the trading week, the GBP gained on both the Euro and the US Dollar, but a midweek sentiment turn around has bought the Pound Sterling back down. Both the ECB and the Bank of England (BOE) are expected to raise interest rates. EUR/GBP Price Chart Follow FXMAG.COM on Google News! USD continues to beat the JPY The Japanese yen seems to be an underperformer in the past week, perhaps this is due to the rising U.S yields by the Fed amidst the Bank of Japan (BoJ) fighting against tightening their monetary policy. Should the market face a big risk-off sentiment, the JPY might see some gains, however in this currency pair, it may not be noticeable due to the USD also being seen as a safe-haven currency. USD/JPY Price Chart AUD regains some investor confidence Market sentiment for this currency pair is bullish. Investor confidence has increased in the Australian Dollar after the unemployment rate for April came in at 3.9% which not only exceeded market expectations but is also the lowest rate since the 1970s. AUD/JPY Price Chart Read next: (EUR/USD, EUR/GBP) Euro Strengthens In The Wake Of Villeroys Comments On Monday, (AUD/JPY), (GBP/USD) Pound Sterling Showing Strength - Good Morning Forex!   Sources: finance.yahoo.com, dailyfx.com, poundsterlinglive.com

USD/CAD has edged lower on Tuesday. In the European session, USD/CAD is at 1.3626, down 0.19%. We could see stronger movement in the North American session when Canada releases the November retail sales report. Will retail sales bounce back? Canada’s retail sales were soft in October, as the headline reading came in at -0.5% and core retail sales at -0.7%. The markets are expecting a mixed report for November, with a consensus of -0.3% for the headline and 0.8% for core retail sales. This will be followed on Wednesday with the CPI data for November, with headline inflation expected to rise to 7.4%, up from 6.9% a month earlier. The Bank of Canada will be following the retail sales and inflation data carefully. The BoC raised rates by 50 basis points earlier in December, bringing the cash rate to 4.25%. The Bank’s current rate cycle has been steep, with 425 points of tightening in just nine months. BoC Governor Macklem expressed a mea culpa on Monday, admitting that the BoC had missed the boat on rising inflation, which was a “very big forecast error.” Still, Macklem said that a turnaround in inflation was near. Over in the US, the Federal Reserve continues to battle with investors, who are not listening to the Fed’s hawkish message and received a cold shower from a hawkish Fed meeting last week. Former New York Fed President Dudley emphasised this point on Monday, warning that investors were ignoring the Fed at their peril, as the Fed would simply continue to tighten if it saw that conditions were becoming too loose. The Fed has projected a terminal rate of 5.00% to 5.25%, a view seconded by Goldman Sachs. However, the money markets have priced in a terminal rate of 4.88%, somewhat more dovish than the Fed. Read next: The Bank Of Japan's Decision To Allow 10-Year Government Bonds Caused Turmoil In The Financial Markets, USD/JPY Trading Below 133| FXMAG.COM USD/CAD Technical There is weak resistance at 1.3681. The next resistance line is 1.3766 USD/CAD has support at 1.3596 and 1.3484 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Canadian dollar eyes retail sales - MarketPulseMarketPulse

USDCAD seeks support The Canadian dollar edged higher after its economy grew by 0.1% in October. The US counterpart had recovered along a rising trendline from mid-November but hit resistance in the supply zone between 1.3700 and last month’s high of 1.3800. A drop below the trendline has weighed on short-term sentiment, making 1.3520 the key support where a breach could cause a correction to 1.3400. The bulls will need to reclaim 1.3700 before the uptrend could regain traction in the medium-term. AUDUSD bounces off key floor The Australian dollar recovers over a rebound in risk appetite. Stiff selling at September’s high of 0.6880 had put a dent to the market’s recovery mood. Short-term traders have taken some chips off the table after an initial fall below 0.6770 which has become a fresh resistance. The current bounce off 0.6630 will need to clear offers ahead before it could gain a solid foothold, then the previous high of 0.6880 would be next. A bearish breakout might put the aussie at the risk of a bearish continuation in the medium-term. GER 40 under pressure The Dax 40 steadied as US PCE and durable goods showed a slowdown in November. On the daily chart, after the index hit June’s high of 14650 - a boundary between bearish continuation and bullish reversal, a bearish MA cross indicates souring sentiment. The sell-off below 14300 has put the bulls on the defensive. While the RSI’s oversold condition has attracted bargain hunters, they may be wary of taking big positions during a week of thin liquidity. 14150 is resistance and 13700 support from the mid-November extension.

While the world is enjoying its New Year's celebrations, it is important to consider whether additional financial market shocks are anticipated for the next year or if their primary impact has already passed. There were a lot of significant geopolitical and economic events this year. Here, the beginning of cycles of interest rate hikes by global central banks led by the Fed and the military confrontation between Russia and the united West had a major impact. The overwhelming majority of economic predictions made after the previous year suggested that all of these issues would persist in 2023. Regarding the geopolitical conflict, there is no doubt; nonetheless, voices in the market have started to be heard, and they are getting louder and louder as they assert that, at the very least, the American regulator can stop this process entirely after the February rate hike. This likelihood, in our opinion, is very high. Back in November, we predicted that the Federal Reserve would stop raising rates after reducing the pace of increases to observe the situation in the national economy and assess some outcomes of an extremely tight monetary policy. This was due to the backdrop of a sharp slowdown in inflation growth and a high risk of the US economy entering a deep recession in the first quarter of 2023. We still maintain that if inflation growth continues to slow and if the December data, which will be released in the middle of this month, confirm this as an already established trend, the Central Bank may decide not to raise the discount rate at all after its meeting, opting instead to focus on the "soft landing" of the economy rather than on its hard entry into recession with all of its "wonderful" repercussions. What can we probably anticipate in the markets this month? We believe there is a strong likelihood of a recovery in demand for risky assets in January following the failure of the stock markets in December and the dollar's attempts to resume growth in the foreign exchange markets. However, this demand will only increase in the middle of the month if data from the consumer price index in the United States show even a slight decline, as this will strengthen expectations among investors of a pause in the growth of rates and their likely termination. This could support the start of a global bull market and a blue reversal in the stock markets. In terms of the future dollar exchange rate, we think that a slow decline will continue, but only if other central banks keep raising interest rates while the Fed is pausing. In addition, given a declining dollar and ongoing major geopolitical issues, we anticipate a rise in demand for gold as a safe-haven asset. In general, we do not anticipate a significant decline in the value of the dollar since there will still be demand for it — just not as a safe-haven currency, but rather as a currency that will be actively purchased to transfer money to the United States, for instance, from Europe. Today's forecast:   USD/CAD With the demand for crude oil still strong and the US dollar weakening globally, the pair will have a good chance of continuing the notable decline that began at the beginning of this month. The price could drop to 1.3385 as a result of its decline below the level of 1.3520. AUD/USD The pair is trading higher, and a break over the 0.6825 level may catalyze a rise to 0.6900. Relevance up to 09:00 2023-01-05 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. Read more: https://www.instaforex.eu/forex_analysis/331277

After its last meeting, the BOC Governor Macklem said that the likely course would be a pause, unless there was a major change in the data. Of course he said it with a lot more words and technical jargon, but that was the essence of the message. Naturally, the markets adjusted the expectation to the BOC holding rates steady. The latest inflation data pointed to a strong deceleration. Even though the rate remains well above target, there is always some delay between when rates are raised and when inflation comes down to an acceptable range. So, it's expected that the central bank will stop raising when inflation starts to show signs it's coming under control, and not necessarily has reduced all the way. What changed? Inflation figures were in line with expectations, confirming the view for the BOC. But, the unemployment rate showed a surprise build. Over 100K people found jobs in December, well above the 7K expected. It is true that Canada has some wildly fluctuating jobs numbers. But given the context of the BOC saying it was going to be data dependent for the next meeting, the consensus now shifted to expect a 25bps hike at the next meeting. The context has implications beyond Canada, since the US faces similar economic conditions, and often the two central banks move in tandem. Inflation in the US has been coming down, but the jobs market remains surprisingly resilient. The prior months had seen slow jobs growth in Canada, leaving the impression that Canada could exit the rate hiking cycle sooner than its southern neighbor. But, if the BOC raises rates, it could have a somewhat diminished impact on the USDCAD, as traders weigh whether the strong jobs numbers seen in the US would also imply the Fed will move higher as well. What about further down the road? The other aspect is the global economy. Most of the reduction in inflation came from lower fuel prices. Wholesale food prices diminished, but not what shoppers were paying at stores. Meaning that the average Canadian might not notice the improving price situation, and in turn that could continue to impact consumer demand. Read next: Despite The Challenges Starbucks Is Developing In Italy, Bank BNP Paribas In Frankfurt Have Been Raided| FXMAG.COM What is more directly correlated to the currency market, however, is the price of crude. As Canada's main export the drop in petroleum prices naturally affected the CAD. But, now that China is reopening faster than expected, there is renewed speculation that crude prices could continue to appreciate. Particularly in the context of the latest IEA report, which forecasts demand for crude to reach a historic peak in the next year, while supplies remain constrained. Potential market reaction It's expected that after this rate hike, the BOC will once again say that it expects a pause, depending on the data. The other option is that it could surprise the markets by not raising rates. That could be because it discounts the jobs data as a one-off, and heavily imply that it could rates rates at the next meeting. Both courses of action would likely leave the long-term outlook for the CAD in the same place, but could provide some short-term volatility.

AUDUSD lower as expected this week to hit very strong support at 6800/80. A low for the day exactly here. Longs need stops below 6760. A break lower is a sell signal of course, targeting 6725/20 today. First resistance at 6850/60 - shorts need stops above 6880. Target is obviously 6800 for profit taking. NZDUSD made a high for the day at resistance at 6240/50 as we trade sideways. Shorts need stops above 6275. A break higher can target 6320/25. Expect strong support at 6185/75. Longs need stops below 6150. A break lower is a sell signal. AUDJPY stuck in an 8 day range , holding within the range of 14th February, which was 9164 - 9304 - so we at least need a breakout of this range to see some movement. Support at 9195/75. Longs need stops below 9155. A break to the downside can target 9080/70. Targets are 9230 & 9270. A break above the 200 day moving average at 9310/20 should be a buy signal targeting 9375/80. USDJPY longs at buying opportunity at 134.10/133.90 worked perfectly as we edge slowly in the right direction to reach 135.22. If we continue higher this week (I do believe we are resuming the longer term bull trend as you know) look for 135.45/55 then 136.00. However yesterday's inside day is not helpful at this stage! A buying opportunity again at 134.10/133.90. Longs need stops below 133.75. Much better support at 133.20/00. Longs need stops below 132.75. EURJPY held 20 pips above support at 142.95/75 then finally hit my target of 144.00/20, with a high for the day exactly here. Further gains are possible to 4 month trend line resistance at 144.60/70. First support at 143.10/142.90 with a low for the day exactly here yesterday. Longs need stops below 142.70. A break lower sees 143.05/15 act as resistance to target 142.40, perhaps as far as 142.00/141.90 for profit taking on shorts. NZDJPY remains in a tight sideways range - only useful for scalpers. Resistance again at 8450/80. A break above 8510 therefore should be a buy signal. Shorts at 8450/80 can target 8400/8390 & 8370/60, perhaps we can fall as far as 8310/8290 eventually. Read next: The Real Estate Market In China Has A Chance To Revive, Indonesia Economy Is More Resilient| FXMAG.COM EURUSD broke support at 1.0690/70 as expected for sell signal targeting 1.0600. At last we hit this target, with a low for the day exactly here, but outlook remains negative. Although there is minor support at 1.0590/1.0570. So a break below 1.0560 is the next sell signal. Gains are likely to be limited with minor resistance at 1.0650/60. Shorts need stops above 1.0670. A sell opportunity today at 1.0700/1.0720. Shorts need stops above 1.0735. A break higher can target resistance at 1.0770/80. USDCAD tests 4 month trend line resistance at 1.3570/90. Shorts need stops above 1.3610. A break higher is a buy signal targeting 1.3700. Shorts at 4 month trend line resistance at 1.3570/90 can target 1.3535 & 1.3490/80 for profit taking. Dollar Index breaking above a 3 month bear trend line with completion of a bull flag - so I think we have another buy signal for the dollar as longs as we hold the trend lines at 103.60/40. Immediately targets for the dollar index are 105.15 & 105.80. EURCAD I am going to wait to see if a head & shoulders forms. A high for the day exactly at the 50 day moving average at 1.4440/50 helps this pattern to develop as I stated yesterday, therefore so far this pattern is starting to play out. A break below support at 1.4230/20 will be the sell signal targeting 1.4150 & 1.3980. CADJPY now has a small double top as we trade sideways for a week. We made a low for the day exactly at support at 9830/20. A break below 9920 can target a buying opportunity at 9840/20. Longs need stops below 9800. GBPUSD longs at strong support at 1.1960/40 worked with the bounce from 1.1920 hitting the target & minor resistance at 1.2020/30 for profit taking. A high for the day at strong resistance at 1.2130/50. Our shorts here can target 1.2070, perhaps as far as 1.2030/20 for profit taking. Strong support again at 1.1960/40.

Markets remain under strong pressure due to expectations of higher Fed interest rates. The released Fed protocol did not show any discrepancies with the resolution that was issued following the last meeting, indicating an almost unanimous decision from the members to raise the key interest rate by 0.25%. It also mentioned that the bank is prepared to continue fighting inflation, which means that if the figure continued to decelerate, interest rates will continue to be raised until it falls to 2%. Such a content could not please market players, but there is one phrase in the minutes that kept the US financial market from continuing its heavy fall. According to the document, inflation seems to have reached its maximum value, so the US equity market closed with mixed dynamics after a very volatile trading session. This indicates that the market assumes that the Fed is likely to act according to circumstances, not hike rates for the sake of mindless pressure on inflation. In fact, if they wanted to, the Fed could have immediately raised rates by 5%. However, the bank wants to bring inflation down to 2% without harming the economy. Markets understand this, which is why there was a prolonged period of consolidation in US stock indices and a halt in dollar. Read next: Tesla Opens Its Global Engineering Headquarters In Palo Alto, California| FXMAG.COM Now, the Fed will act according to incoming economic data, so tomorrow's release of core PCE and US income and expenditures will certainly be taken into consideration. If those show growth, the central bank will continue its rate hike cycle, while markets will resume selling risky assets and government bonds. This will push yields up and support dollar. But if the figures show inflation stagnating or falling slightly in line with expectations, markets will stay afloat and a prolonged period of consolidation should be expected before the release of US inflation data for February. Forecasts for today:     EUR/USD The pair remains under pressure as risk appetite continues to deteriorate due to increasing expectations of further aggressive Fed policy. However, the pair may get some support today if eurozone inflation data shows an increase. The quote may rise to 1.0655, but then resume falling to 1.0575, as the pressure of dollar remains quite strong. USD/CAD The pair is trading above 1.3510. Another decline in oil prices, as well as pressure from dollar, could push the quote to 1.3670. Relevance up to 08:00 2023-02-25 UTC+1 This information is provided to retail and professional clients as part of marketing communication. It does not contain and should not be construed as containing investment advice or investment recommendation or an offer or solicitation to engage in any transaction or strategy in financial instruments. Past performance is not a guarantee or prediction of future performance. Instant Trading EU Ltd. makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on analysis, forecast or other information provided by an employee of the Company or otherwise. Full disclaimer is available here. Read more: https://www.instaforex.eu/forex_analysis/335898

AUDUSD lower as expected this week to hit very strong support at 6800/80. A low for the day exactly here again yesterday. Longs need stops below 6760. A break lower is a sell signal of course, targeting 6725/20 today. Our longs now target first resistance at 6850/60 for profit taking - shorts here need stops above 6880. Target is obviously 6800 for profit taking. USDJPY longs at buying opportunity at 134.10/133.90 worked perfectly as we edge slowly in the right direction to reach 135.36 but not enough to hit my target of 135.45/55. The pair reversed to retest my buying opportunity at 134.10/133.90. A low for the day exactly here. Longs need stops below 133.60. Much better support at 133.10/132.90. Longs need stops below 132.70. Our new longs at 134.10/133.90 have already reached 134.60. |Above 134.80 can retest 135.20/30. On a break above 135.40 look for 135.80/90. Read next: Undoubtedly, the Shanghai upgrade will significantly impact ETH's price and volatility | FXMAG.COM EURJPY broke first support at 143.10/142.90 for a sell signal & we did bounce to 142.91 before hitting the downside target of 142.40, but not quite as far as 142.00/141.90 for profit taking on shorts. A low for the day 14 pips above here as I write. EURUSD broke support at 1.0690/70 as expected for sell signal targeting 1.0600 with a low for the day exactly at minor support at 1.0590/1.0570. So a break below 1.0560 is the next sell signal targeting 1.0510/00. I would not be surprised to see a bounce from 1.0590/1.0570 to minor resistance at 1.0640/50. Shorts need stops above 1.0660. A break higher can target 1.0680/90 today. USDCAD tests 4 month trend line resistance at 1.3570/90 with a high for the day exactly here. Shorts need stops above 1.3610. A break higher is a buy signal targeting 1.3700. Shorts at 4 month trend line resistance at 1.3570/90 can target 1.3535 (hit yesterday) & 1.3490/80 for profit taking. Dollar Index breaking above a 3 month bear trend line with completion of a bull flag - so I think we have another buy signal for the dollar as longs as we hold the trend lines at 103.60/40. Immediately targets for the dollar index are 105.15 & 105.80. EURCAD I am going to wait to see if a head & shoulders forms. A high for the day exactly at the 50 day moving average at 1.4440/50 helps this pattern to develop as I stated yesterday, therefore so far this pattern is starting to play out. A break below support at 1.4230/20 will be the sell signal targeting 1.4150 & 1.3980. CADJPY now has a small double top as we trade sideways for a week. We made a low for the day exactly at support at 9830/20. The break below 9920 did not hold yesterday, but if we do make the break today we can target a buying opportunity at 9840/20. Longs need stops below 9800. GBPUSD made a high for the week at strong resistance at 1.2130/50. Our shorts here worked perfectly as we hit 1.2030/20 for profit taking. Strong support again at 1.1960/40.

We are retesting 6700/6695 as bears remain in control, as expected. A break lower can target 6670/60 & 6630/20. NZDUSD shorts at first resistance at 6190/6200 worked perfectly as prices collapsed from 6207. If we retest this resistance today, shorts need stops above 6215. A break higher can target 6145/55. Shorts at 6190/6200 can target 6150/40 for some profit taking. Be ready to sell a break below 6125 to target 6100/6090, probably as far as 6040/30 for profit taking on shorts. CADJPY hit my target & Fibonacci resistance at 100.55/65. Shorts needed stops above 100.80 & this was tricky because we overran to 100.88. If you managed to hold the short, the pair collapsed to my target of 100.00/9990, reaching 9970. I expect good support at 9970. Try longs with stop below 9940. Targets for longs are 100.40 & 100.60. Resistance at 100.60/80!! Shorts need stops above 101.00. A break higher sees 100.70/60 act as support to target 101.25/35 & 102.00. USDJPY longs at buying opportunity at 134.10/133.90 hit my target of 135.45/55 & 135.80/90 before reaching strong resistance at 136.65/85. What a great run for our longs!! Shorts at 136.65/85 worked perfectly as the pair collapsed from 136.93 to hit my target of 136.00 but then bounced half way to first support at 135.50/30. First support is higher today at 135.80/60. Longs need stops below 135.40. Shorts at resistance at 136.65/85 if we retest today, need stops above 137.10. A break higher is a buy signal for this week targeting 138.00/20. NZDJPY remains in a tight sideways range - only useful for scalpers. A high for the day exactly at resistance at 8450/80. A break above 8510 therefore should be a buy signal. Shorts at 8450/80 can target 8400/8390 (only 5 pips away as I write) & 8370/60, perhaps we can fall as far as 8310/8290 eventually. EURUSD unfortunately beat resistance is at 1.0590/1.0610 before reversing 5 pips from the next target of target 1.0650/60. Frustrating because the pair then collapsed as expected to my target of 1.0580/75. Further losses look likely to 1.0545/35. If we continue lower look for 1.0510/00, perhaps as far as strong support at 1.0470/50. Longs need stops below 1.0430. Whilst I think EURUSD will head lower, my level for today need revision! It may be worth waiting to see if we can bounce again to1.0650/70. Shorts need stops above 1.0690. USDCAD made a low for the day exactly at 1.3590/70 so to maintain a buy signal targeting 1.3700. Longs at 1.3590/70 if we retest today, stop below 1.3550. Dollar Index held 10 ticks above strong support at 104.30/20 & saw a nice bounce. If the support is retested, longs need stops below 104.00. EURCAD I am going to wait to see if a head & shoulders forms. A break below support at 1.4230/20 this week will be the sell signal targeting 1.4150 & 1.3980. GBPUSD bounce from strong support at 1.1960/40 has reached 1.2068 but unfortunately over ran strong resistance at 1.2090/1.2110 before reversing from 1.2143 & seeing a 100 pip drop to my target of 1.2040/20. Strong support again at 1.1960/40. Longs need stops below 1.1910. A break below 1.1910 is a sell signal for this week targeting 1.1865/55, perhaps as far as 1.1810/00. I am going to stubbornly stick to resistance at 1.2090/1.2110 today. Shorts need stops above 1.2140!!

The Canadian dollar is coming off a relatively quiet week but that could change as there a host of key releases this week. Ivey PMI kicks things off later today, followed by the Bank of Canada rate decision on Wednesday and the February employment report on Friday. Canada’s Ivey PMI recorded a massive rebound in January, climbing from 33.4 all the way to 60.1 points. A reading above 50.0 points to expansion. The reading is expected to remain strong in February, with an estimate of 57.7 points. Canada’s economy ended 2022 in an unimpressive fashion, posting a growth rate of 0.0% y/y in the fourth quarter, compared to 2.3% in Q3. This was much lower than the market estimate of 1.5% and the Bank of Canada’s projection of 1.3%. On a monthly basis, December GDP contracted by 0.1%, down from 0.0% in November and below the estimate of 0.0%. BoC expected to pause The Bank of Canada meets on Tuesday and is widely expected to hold rates at 4.50%. A non-move would be significant, as the BoC hasn’t taken a pause since the current rate-tightening cycle began in January 2023. Governor Macklem has signalled to the markets that he wants to take a pause in tightening, and the weak GDP report will support the BoC easing off the rate pedal as the economy shows signs of slowing. The steep hike in rates has pushed inflation lower, as it fell to 5.9% in January, down from 6.3% a month earlier. What will the BoC do after tomorrow’s rate decision? The BoC would love to pause rates throughout the year, but Macklem has made clear that a pause is dependent on supportive data. There is also the complication that the Federal Reserve is likely to continue hiking several more times this year, and the BoC does not want to fall too far out of sync with rate levels in the US. Read next: Important Week For The Australian Dollar And Japanese Yen, BoJ And RBA Monetary Policy Decision Ahead| FXMAG.COM In the US, this week’s key events are Fed Chair Powell’s semi-annual testimony before Congress and the nonfarm payroll report, both of which could move the US dollar. If Powell provides any hints about further rate hikes, the US dollar could respond with gains. Nonfarm payrolls was red-hot in January with 517,000 new jobs, but this is expected to be a one-time bump, with the estimate for February standing at 200,000. The surprisingly resilient labour market has the Fed concerned about wage pressures, and a strong wage growth release could raise market expectations of higher rates. USD/CAD Technical 1.3701 and 1.3784 are the next resistance lines 1.3571 is a weak support line, followed by 1.3478 This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Canadian dollar eyes Ivey PMI - MarketPulseMarketPulse

Three Fed members will deliver public statements on a very light data calendar today On Wednesday, the Bank of Canada is expected to pause, and US inflation is projected to fall to 5.2% USD/CAD is almost unchanged, trading around 1.3500 The Canadian dollar is almost unchanged, trading at 1.3501 in Europe. With no Canadian events and no tier-1 releases out of the US, we can expect a quiet day for USD/CAD. The markets will be listening closely as Fed members Goolsbee, Harker and Kashkari will speak. Wednesday should be much busier for the Canadian dollar, with key releases in both Canada and the US. The Bank of Canada will make a rate announcement and the US releases the inflation report for March. Bank of Canada likely to hold rates The Bank of Canada meets on Wednesday and is widely expected to pause rates for a second straight time, leaving the cash rate at 4.50%. Governor Macklem announced a “conditional pause” on rates, saying that the central bank would pause if warranted by the data. The key to the Bank’s rate path is inflation, which the central bank is committed to wrestling back to the target of 2%. Read next: Taiwan’s softer inflation and weak exports should make the central bank pause and weaken the currency| FXMAG.COM The battle against inflation is moving in the right direction, with CPI falling to 5.2% in February, down from 5.9% a month earlier. The employment market remains robust, with the economy adding 34,700 jobs in March, up from 21,800 in February. A rate hike would help cool the labour market but would dampen growth and hurt consumers and businesses which are struggling under the weight of high interest rates. With a pause being the likely decision, the tone of the rate statement could affect the movement of the Canadian dollar on Wednesday. US inflation The US releases March inflation on Wednesday. This will be the last CPI release prior to the Fed’s May 3rd meeting and will play a key factor in the Fed’s rate decision. Currently, the markets have priced in a 25-basis point hike at 67%, according to the CME Group, and an unexpected inflation reading will very likely lead to the repricing of rate hike bets. Inflation fell from 6.4% to 6.0% in February and is expected to ease to 5.4% in March. USD/CAD Technical USD/CAD tested support at 1.3486 earlier today. Below, there is support at 1.3397 1.3566 and 1.3629 are the next resistance lines Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc. USD/CAD steady, Bank of Canada expected to pause again - MarketPulseMarketPulse

Bank of  Canada pauses rates for second straight month US headline inflation drops to 5%, core rate rises to 5.6% Canadian dollar climbs to highest level since February 16 The Canadian dollar has extended its rally, and is up 0.29% today, trading at 1.3402 in Europe. Bank of Canada holds rates There wasn’t much drama ahead of the Bank of Canada’s decision to hold rates, as the non-move was widely expected. The benchmark cash rate is at 4.5% and the rate statement said that the BoC was prepared to raise rates “if needed to return inflation to the 2% target”. The BoC’s growth forecast for 2023 was upwardly revised to 1.4%, up from 1.0%. This pleased investors and has boosted the Canadian dollar. US inflation report sends mixed signals The Fed and the markets eagerly awaited Wednesday’s March inflation report, but the mixed signals mean that little may have actually changed with regard to the Fed’s rate path. Gasoline and food prices fell but housing costs remained high. The good news was that headline inflation fell from 6.0% to 5.0%, lower than the consensus estimate of 5.2%. The bad news was that the core rate rose to 5.6% as expected, nudging up from the 5.5% read in February. Investors weren’t quite sure how to respond to the data – equities initially rose but the rally soon faded. Read next: Canadian dollar: Next week, all eyes will be on the inflation data, which is expected to cool down further to as low as four percent| FXMAG.COM After the inflation release, Fed member Barkin expressed concern that core inflation continues to run above 5%. Barkin noted that demand is cooling but the job market and inflation remain strong. Market pricing continues to sway ahead of the Fed meeting on May 4th. The odds of a 25-basis point hike are currently at 66%, according to the CME Group. This is down from the 72% probability prior to the inflation report. It was only a week ago that the odds of a 25-bp hike or a pause were split 50/50 and I expect further repricing ahead of the meeting. The markets expect the current rate-tightening cycle to end soon, with a few rate cuts expected by the end of the year. USD/CAD Technical USD/CAD is testing support at 1.3436. Below, there is support at 1.3356 1.3486 and 1.3566 are the next resistance lines   Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc. USD/CAD - Canadian dollar hits 2-month high as BoC pauses again - MarketPulseMarketPulse

Canadian retail sales expected to have declined US Services and Manufacturing PMIs projected to have slowed USD/CAD pushes above 1.35 The US dollar is broadly higher today, and USD/CAD has climbed to 1.3530, up 0.40% on the day. The Canadian dollar is on a downturn and has lost close to 200 points since last Friday. Canadian dollar eyes retail sales, US PMIs The week wraps up with key releases on both sides of the border. Canada releases retail sales for February, with the markets expecting declines after strong gains in the prior reading. Headline retail sales are expected to fall by 0.6%, after a sharp gain of 1.4%. The core rate is projected to dip by 0.1%, after a 0.9% gain in January. A decline in consumer spending would not be all that surprising, given current economic conditions. Inflation, which is public enemy number one, appears to have peaked, but prices continue to rise and this is weighing on consumers. Households are seeing a decrease in disposable income as higher interest rates mean rising mortgage costs. The Conference Board of Canada has projected real GDP will expand by 0.9% in 2023, a negligible gain. Consumer spending is a key driver of economic growth and a sour consumer holding tightly on the purse strings will hamper the economic recovery. Read next: Australian dollar - the sharp drop can be attributed to technical factors and hawkish Fed| FXMAG.COM The US releases April PMIs later today and any surprises could affect the movement of USD/CAD before the weekend. The Services PMI is expected to dip to 51.5, down from 52.6, while the Manufacturing PMI is projected to tick lower to 49.0, down from 49.2 points. The 50.0 level separates expansion from contraction. Services is expected to show expansion for a third straight month, while manufacturing is forecast to remain in contraction for a seventh straight time. These trends are evident worldwide and are not limited to the US. The service sector (business activity) remains resilient in the face of an uncertain global outlook, while manufacturing continues to struggle with rising prices and supply chain issues. USD/CAD Technical USD/CAD is testing resistance at 1.3509. Above, there is support at 1.3629 1.3406 and 1.3275 are providing support Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc. USD/CAD extends rally, markets brace for weak Canadian retail sales - MarketPulseMarketPulse

Canadian retail sales declined US Manufacturing and Services PMIs accelerated USD/CAD has climbed 200 points in one week USD/CAD continued to rally today but has pared most of those gains. In Europe, USD/CAD is trading at 1.3527 Canada’s core retail sales drop  The markets were bracing for a weak Canadian retail sales report in February, and the numbers were indeed soft. Headline retail sales fell 0.2%, above the -0.6% gain but down from 1.6% in January. The core rate was even worse, with a decline of 0.7%, versus an estimate of -0.1% and a prior reading of 0.9%. The weak numbers extended the Canadian dollar’s woes, as USD/CAD is about 200 points higher since April 14th. The March numbers could be far worse, with Statistics Canada forecasting a 1.4% slide in retail sales. It’s clear that the Bank of Canada’s aggressive tightening is dampening consumer spending, and high inflation has taken a bite out of disposable income. The BoC has paused at its last two meetings and left the benchmark rate at 4.50% and is monitoring the effects of its tightening cycle. If the economy decelerates, we can expect the BoC to continue to hold rates, as long as inflation doesn’t move upwards. Canada releases February GDP on Friday, with the economy expected to have expanded by just 0.2%. Read next: Alphabet, Meta, Amazon - mega cap tech companies are to report their earnings they after day starting tomorrow!| FXMAG.COM In the US, Friday’s PMI reports for March beat the forecasts and indicated a slight acceleration in manufacturing and services. After six months of contraction, manufacturing pushed (barely) into expansion territory, rising from 49.2 to 50.4 (49.0 est.). Services rose to 53.5, up from 52.3 and above the estimate of 52.8 points. The strong numbers could reignite inflation and force the Fed to continue raising rates after the May meeting. Core inflation has been sticky and actually rose in March from 5.5% to 5.6% and we could see the core rate rise again in April. USD/CAD Technical There is resistance at 1.3577 and 1.3616 1.3487 and 1.3435 are providing support   Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc. Canadian dollar hits 3-week low as retail sales decline - MarketPulseMarketPulse

Canada’s employment change expected to slow US nonfarm payrolls projected to fall to 179,000 Canadian dollar rallies for third straight day The Canadian dollar continues to rally today and has climbed 120 points since Tuesday. Earlier in the day, USD/CAD touched a low of 1.3490, its lowest level since April 21st. Canadian employment change expected to ease The markets will be treated to key employment numbers on both sides of the border later today. Canada is expected to have added 20,000 new jobs in April, following 34,700 in March. This would be the lowest reading in four months and would be a clear sign that the labour market is weakening as interest rate hikes make their effect felt on the economy. In the US, nonfarm payrolls for April could move the dial on the US dollar ahead of the weekend. The markets are braced for a drop to 179,000, following 236,000 in March. There is a growing feeling that the labour market, which is been surprisingly resilient to relentless rate hikes, is showing cracks. Unemployment claims jumped to 242,000, up from a downwardly revised 229,000 and above the consensus of 240,000. Business optimism remains weak and that could translate into less hiring. If nonfarm payrolls fall to 180,000 or less, I would expect to see the US dollar lose ground, on expectations that the Fed may ease policy. The Fed’s rate hike of 25 basis points this week may have been the end of the current rate-hike cycle, in which the Fed has raised rates 10 consecutive times. Fed Chair Powell hinted that the Fed could pause rates as soon as June, although he reminded his listeners that the battle against inflation was far from over and didn’t close the door on further hikes. The markets are betting on a pause in June, with a probability of 99%, according to the CME Group. Read next: China: Caixin Services PMI decreased after four consecutive months of increase| FXMAG.COM Powell said that given the inflation outlook, rate cuts were not on the table. The markets don’t buy it and have priced in a rate cut at around 50% in July and a whopping 88% in September, according to the CME Group. USD/CAD Technical USD/CAD tested support at 1.3492 earlier. Next, there is support at 1.3435 1.3580 and 1.3637 are the next resistance lines   Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc. USD/CAD extends slide ahead of job reports - MarketPulseMarketPulse

Canada add 41K new jobs US nonfarm payrolls jump to 253K Canadian dollar surges by 1.2% The Canadian dollar has extended its gains on Monday. USD/CAD is currently trading at 1.3339, down 0.26%. Canada’s job market stays hot Canada’s labour market defied expectations in April, as the economy added 41,400 jobs, above the March gain of 34,700 and the consensus estimate of 20,000. The unemployment rate remained at 5.0%, below the forecast of 5.1%. Wage growth remained unchanged at 5.2%. The employment report was surprisingly strong given that there are signs of the economy weakening, with GDP for March expected at -0.1%. The BoC is keeping a watchful eye on inflation, which has fallen to 4.3% but is still more than double the BoC’s target. The central bank would like to continue pausing, but a rate cut is unlikely so long as wage pressures remain high. In the US, nonfarm payrolls for April surprised on the upside, rising to 253,000. This follows a March gain of 165,00, revised down from 236,000, and well above the consensus estimate of 179,000. Wage growth ticked up to 4.4%, above the upwardly revised 4.2% gain in March and above the estimate of 4.2%. Unemployment fell to 3.4%, down from the March reading of 3.4% which was also the estimate. Read next: Kenny Fisher from Oanda talks US dollar against Canadian dollar - May 5th| FXMAG.COM Somewhat surprisingly, the better-than-expected jobs data did not boost the US dollar, and the Canadian dollar jumped 1.2%, its best one-day showing since January. The markets have repriced a pause in July at 90%, down from 99% just before the employment release on Friday. Fed Chair Powell said last week that rate cuts were not on the table, but the markets have priced in a cut in rates in the fourth quarter. USD/CAD Technical USD/CAD is testing support at 1.3345. Below, there is support at 1.3284 1.3462 and 1.3553 are the next resistance lines Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc. Canadian dollar powers to 5-week high on strong job numbers - MarketPulseMarketPulse

Canadian retail sales expected to decline Fed Chair and two FOMC members will speak later The Canadian dollar is trading quietly ahead of a key retail sales report later today. USD/CAD is trading in Europe at 1.3484, down 0.13%. Markets brace for soft Canadian retail sales The Canadian consumer is holding tightly to their wallet, which is not all that surprising in the current economic climate. Inflation ticked higher in April, rising from 4.3% to 4.4%. Add in high interest rates and it’s not hard to sympathize with consumers who are struggling with the cost of living. The April retail sales report may show that things are getting worse – headline retail sales is expected to slow to -1.4%, down from -0.2% in March, and the core rate is expected to fall from -0.7% to -0.8%. Not exactly a winning recipe for economic growth. A decline in today’s report could unnerve investors and send the Canadian dollar lower. The Bank of Canada will not be pleased with the slight increase in inflation, although the core rate, which is a more reliable gauge of inflation trends, did move lower. The BoC meets next on June 7th and there is only one more tier-1 release before the meeting, that being GDP. If retail sales contracts for a second straight month as expected, there will be more support for the BoC to continue to hold rates at 4.50%, where they have been pegged since March. Read next: Kenny Fisher talks British pound against US dollar. UK economy declined 0.3% in March, Bank of England chose the 25bp variant| FXMAG.COM It’s a bare economic calendar in the US today, with no data releases. The markets will have a chance to focus on Fedspeak, with Jerome Powell and two FOMC members delivering public remarks. Just a few weeks ago, the markets had priced in a pause at the June meeting at over 90%. That has changed to a 66% chance of a pause and a 33% chance of a hike of 25 basis points, according to CME’s FedWatch. That downward revision is due to a consistently hawkish message from the Fed and a solid US economy. USD/CAD Technical USD/CAD is testing support at 1.3479. Below, there is support at 1.3394 1.3644 and 1.3729 are the next resistance lines Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc. USD/CAD - Will retail sales weigh on the Canadian dollar? - MarketPulseMarketPulse

USD/CAD has been trading downside and I found the breakout of the support cluster at the price of 1.3590, which is good sign for the further downside movement.   Due to the breakout of the support cluster and the increasing in the downside movement, I see potential for the further lower prices towards downside references.   Downside objectives are set at 1.3540 and 1.3490 MACD is showing increasing of the downside momentum, which is good sign for the further lower prices.... Key resistance is set at the price of 1.3650  

Canada releases retail sales Fed Chair Powell testifies before a House Committee The Canadian dollar is drifting lower on Wednesday. USD/CAD is trading at 1.3222 in Europe, down 0.10%. The US dollar has endured a rough month of June, and the Canadian dollar has climbed an impressive 2.6% during that time.   Markets eye Canadian retail sales Canada’s retail sales have hit a bump in the road. In March, retail sales and core retail sales both contracted for a second straight month. Headline retail sales came in at -1.4% and the core rate fell by 0.3%. The markets are expecting better news in the April report, with a consensus of 0.2% for the headline reading and 0.4% for the core rate. With inflation running at 4.4% and the Bank of Canada continuing to raise interest rates, consumers have been hard hit by the cost-of-living crisis and have cut back on spending. The Bank of Canada needs the economy to cool before it can wrap up the current rate-tightening cycle. The BoC surprised the markets when it raised rates earlier this month, as investors had expected a third-straight pause. The BoC defended its hike by pointing at GDP and inflation, both of which were higher than expected. The labour market remains tight and this has complicated the Bank’s battle with inflation, which could mean a “higher and longer” rate-hike cycle than the BoC had anticipated.  

Powell testifies on the Hill Fed Chair Powell will testify before Congress on Wednesday and Thursday and will face questions about the Fed’s rate path.   The Fed paused at this month’s meeting but is expected to raise rates at the July meeting. Powell has said that he can pull off a soft landing that will avoid a recession and large layoffs, but many lawmakers remain concerned that more rate hikes this year will cause significant damage to the US economy.   USD/CAD Technical USD/CAD is testing resistance at 1.3253. Above, there is resistance at 1.3329 1.3175 and 1.3047 are providing support lines    

Canada’s inflation expected to ease in May The inflation data could be a key factor in BoC’s July rate decision The Canadian dollar moved higher earlier on Monday but has pared these gains. In the North American session, USD/CAD is trading at 1.3169, down 0.10%. The Canadian dollar has been red-hot against its US counterpart, surging 3% in the month of June.   Canadian inflation expected to ease Canada releases May inflation numbers on Tuesday, and the markets are expecting inflation to fall after rising slightly in April. Headline inflation is expected to fall to 3.4%, down sharply from the current 4.4%. Core CPI is projected to ease to 3.9%, down slightly from 4.1%. The Bank of Canada has been fighting a long and tough battle against inflation, and a deceleration on Tuesday would be welcome news. Still, it may not be enough to convince the bank to hold rates at the July 12th meeting. The BoC raised rates in May, citing stronger-than-expected GDP growth as one of the reasons for the hike. Last week’s strong retail sales report could force the Bank to raise rates again, as the solid economic numbers are making it more difficult for the BoC to reach its 2% inflation target.   A sharp drop in headline inflation is unlikely to prevent a July rate hike since much of that decline can be attributed to lower energy prices. The real test will be the core rate – a sharper-than-expected decline could convince BoC policy makers to take a pause, which would be welcome news for weary householders who are grappling with high inflation and rising mortgage costs. Otherwise, Canadian consumers are likely to see more rate hikes in the coming months. The Federal Reserve releases its annual “stress tests” for major lenders, which assess whether the lenders could survive a sharp economic downturn. The stress tests will attract more attention than in previous years, due to the recent banking crisis which saw Silicon Valley Bank and two other banks collapse.   USD/CAD Technical There is resistance at 1.3197 and 1.3254 1.3123 and 1.3066 are providing support  

Canada’s inflation rate eases US Durable Goods Orders accelerate The Canadian dollar spiked and gained 50 points after Canada released the May inflation report but has pared these gains. USD/CAD is unchanged at 1.3158.   Canadian inflation heads lower Canada’s inflation rate fell sharply in May to 3.4%, down from 4.4% in April. As expected, much of that decline was due to lower gasoline prices. Still, this is the lowest inflation rate since June 2021.The core rate, which is comprised of three indicators, fell to an average of 3.8% in May, down from 4.2% a month earlier. The decline should please policy makers at the Bank of Canada, as inflation slowly but surely moves closer to the 2% target. The BoC cited the surprise upswing in inflation in April as one reason for its decision to hike rates earlier this month. With headline and core inflation falling in May, will that be enough to prevent another rate increase in July? Not so fast. The BoC has said its rate decisions will be data-dependent, and there is the GDP on Friday and employment next week, both of which will factor in the rate decision. The US released a host of releases today, giving the markets plenty to digest. Durable Goods Orders jumped 1.7% in June, up from an upwardly revised 1.2% in May and crushing the consensus of -1%. The core rate rebounded with a 0.6% gain, up from -0.6% and above the consensus of -0.1%. Later today, the US publishes the Conference Board Consumer Confidence and New Home Sales. Wednesday is a light day on the data calendar, with the Fed will in the spotlight. Fed Chair Jerome Powell will participate in a “policy panel” at the ECB Banking Forum in Sintra, Portugal, and investors will be looking for some insights into Fed rate policy. As well, the Fed releases its annual “stress tests” for major lenders, which assess the ability of lenders to survive a severe economic crisis. The stress tests will attract more attention than in previous years, due to the recent banking crisis which saw Silicon Valley Bank and two other banks collapse.   USD/CAD Technical There is resistance at 1.3197 and 1.3254 1.3123 and 1.3066 are providing support  

Canada’s GDP surprises to the upside US PCE Price Index eases in June ISM Manufacturing PMI expected to contract The Canadian dollar is trading at 1.3259, up 0.07%. Canadian markets are closed for a holiday and I expect USD/CAD movement to be limited. On the economic front, the US releases ISM Manufacturing PMI. The index is projected to tick lower to 46.9 in June, down from 47.0 in May.   Canada’s GDP climbs in May Canada wrapped up the week with a strong GDP report. The economy is estimated to have gained 0.4% in May, after flatlining in April. The Canadian economy continues to surprise with its resilience despite rising interest rates. The Bank of Canada raised rates to 4.75% earlier this month after a five-month pause, arguing that monetary policy was not restrictive enough. The BoC statement pointed at strong consumer spending and higher-than-expected growth as factors in the decision to raise rates. The BoC also expressed concerns that inflation could remain entrenched above the 2% target. The strong GDP report has added fuel to speculation that the BoC will raise rates again on July 12th but there is also concern that higher rates will lead to a recession. Canadian 10-year bonds have fallen further below the 2-year bonds, as the yield curve inversion, a predictor of recession, has become even more pronounced. Inflation has been falling and headline inflation eased to 3.4% in May, down from 4.4% in April. Core inflation also declined to 3.8%, down from 4.2%. The question remains whether inflation, still well above the 2% target, is falling fast enough to prevent another rate hike in July. In the US, there were more signs that inflation is weakening. On Friday, the PCE Price Index, which is the Fed’s favourite inflation gauge, declined from 0.4% to 0.1% in June. As well, UoM Inflation Expectations dropped to 3.3% in June, down from 4.2% in May and the lowest since March 2021. Despite these signals that inflation is decelerating, the Fed is widely expected to raise rates at the July meeting.   Canada’s GDP surprises to the upside US PCE Price Index eases in June ISM Manufacturing PMI expected to contract The Canadian dollar is trading at 1.3259, up 0.07%. Canadian markets are closed for a holiday and I expect USD/CAD movement to be limited. On the economic front, the US releases ISM Manufacturing PMI. The index is projected to tick lower to 46.9 in June, down from 47.0 in May. Canada’s GDP climbs in May Canada wrapped up the week with a strong GDP report. The economy is estimated to have gained 0.4% in May, after flatlining in April. The Canadian economy continues to surprise with its resilience despite rising interest rates. The Bank of Canada raised rates to 4.75% earlier this month after a five-month pause, arguing that monetary policy was not restrictive enough. The BoC statement pointed at strong consumer spending and higher-than-expected growth as factors in the decision to raise rates. The BoC also expressed concerns that inflation could remain entrenched above the 2% target. The strong GDP report has added fuel to speculation that the BoC will raise rates again on July 12th but there is also concern that higher rates will lead to a recession. Canadian 10-year bonds have fallen further below the 2-year bonds, as the yield curve inversion, a predictor of recession, has become even more pronounced. Inflation has been falling and headline inflation eased to 3.4% in May, down from 4.4% in April. Core inflation also declined to 3.8%, down from 4.2%. The question remains whether inflation, still well above the 2% target, is falling fast enough to prevent another rate hike in July. In the US, there were more signs that inflation is weakening. On Friday, the PCE Price Index, which is the Fed’s favourite inflation gauge, declined from 0.4% to 0.1% in June. As well, UoM Inflation Expectations dropped to 3.3% in June, down from 4.2% in May and the lowest since March 2021. Despite these signals that inflation is decelerating, the Fed is widely expected to raise rates at the July meeting.   USD/CAD Technical USD/CAD is putting pressure on resistance at 1.3254. Next, there is resistance at 1.3328 1.3175 and 1.3066 are providing support  

CAD: We expect a BoC hike today The Bank of Canada surprised markets with a hike in June, and our base case is that policymakers will follow up with another 25bp increase today. As discussed in our preview, the data flow since the June meeting has not pointed unequivocally in the direction of more tightening, but the latest jobs report continued to point to a tight jobs market and we see a higher chance that the BoC will favour two back-to-back hikes after a five-month pause. The consensus has been split lately but has leaned more in favour of a hike in the past few days. Markets price in around 17bp ahead of today’s announcement. There is undoubtedly some upside potential for CAD today in our baseline scenario, especially because the BoC may see the advantage in attaching a dovish statement to a hike, so closing the door to further tightening if needed. USD/CAD could be eyeing the 1.3120 late-June lows, and we like the loonie even more against other procyclical currencies like the Australian dollar or the Swedish krona. 

CAD: We expect a BoC hike today The Bank of Canada surprised markets with a hike in June, and our base case is that policymakers will follow up with another 25bp increase today. As discussed in our preview, the data flow since the June meeting has not pointed unequivocally in the direction of more tightening, but the latest jobs report continued to point to a tight jobs market and we see a higher chance that the BoC will favour two back-to-back hikes after a five-month pause. The consensus has been split lately but has leaned more in favour of a hike in the past few days. Markets price in around 17bp ahead of today’s announcement. There is undoubtedly some upside potential for CAD today in our baseline scenario, especially because the BoC may see the advantage in attaching a dovish statement to a hike, so closing the door to further tightening if needed. USD/CAD could be eyeing the 1.3120 late-June lows, and we like the loonie even more against other procyclical currencies like the Australian dollar or the Swedish krona. 

Bank of Canada raises rates by 0.25% US inflation falls to 3.0%, lower than expected The Canadian dollar has posted strong gains in Wednesday’s North American session. In the North American session, USD/CAD is trading at 1.3146, down 0.63%. On the economic calendar, it has been a busy day, with the Bank of Canada raising interest rates and US inflation falling lower than expected.   Bank of Canada hikes by 0.25% The Bank of Canada raised rates by 0.25% on Wednesday, bringing the cash rate to 5.0%. The BoC has delivered 475 basis points in hikes since March 2022 and the aggressive tightening has sent inflation lower. Still, the BoC’s rate statement noted that it remains concerned that progress towards the 2% target could stall and that it does not expect to hit the target before mid-2025. This can be considered a hawkish hike and the Canadian dollar has responded with strong gains on Wednesday.   US inflation falls more than expected Wednesday’s US inflation report should please the Federal Reserve, which has circled high inflation has enemy number one. The June release showed headline inflation falling to 3.0%, down from 4.0% in May. This beat the consensus estimate of 3.1% and was the lowest level since March 2021. Even more importantly, the core rate fell from 5.3% to 4.8%, below the consensus estimate of 5.0%. On a monthly basis, both the headline and core rate came in at 0.2%, below the consensus estimate. The inflation release was excellent news, but isn’t expected to change the Fed’s plans to raise rates at the July 27th meeting. The inflation data didn’t change market pricing for the July meeting (92% chance of a hike), but did raise the chances of a September hike from 72% prior to the inflation release to 80% after the release. Although the jobs report on Friday showed nonfarm payrolls declining considerably, wage growth was higher than expected and likely convinced the Fed to raise rates at the July 26th meeting before taking a pause.   USD/CAD Technical There is resistance at 1.3191 and 1.3289 1.3105 and 1.3049 are providing support    

USD/CAD: Loonie affected by the US as much as by Canada   The Bank of Canada resumed tightening with two hikes in June and July, and we cannot exclude another increase in September. However, the softer June US CPI means that there is less external pressure to hike as chances of a Fed move have declined. CAD remains quite tied to the domestic US story, and therefore to the USD itself. Should we see a fully-fledged risk-on rally on the back of a clear softening in US data, expect CAD underperformance compared to other pro-cyclicals. A more conservative scenario, where markets have to “hold their horses” on the USD decline/Fed peak story for a bit longer can make CAD stand out. In all cases, the attractive volatility-adjusted carry means USD/CAD can hit 1.25-1.27 by mid-2024.      

The US consumer price index turned out to be much weaker than forecasts, leading to a drop in yields and a sharp increase in demand for risky assets. Inflation dropped from 4% YoY to 3% (forecast at 3.1%), the core index from 5.3% to 4.8% (forecast at 5.0%). The main reason for the decrease was the group of volatile goods and services – prices for airline tickets, hotel rooms, and used cars. Fed rate futures slightly changed - the likelihood of a rate hike in July even slightly increased to 92%, while the start of the easing cycle was shifted from May to March 2024.     This is possibly due to the fact that we don't know if this pace of decline will be sustainable. Richmond Fed President Barkin spoke after the report and urged not to pay attention to the fall in inflation, as long as the labor market remains too tense, inflation could return to high levels, and then it would take much more effort.   Meester from the Cleveland Fed essentially said the same thing - as long as wage growth is 4.5-5.0%, with productivity growth of less than 1.5%, it is too early to talk about price stability. Markets quickly reacted and the dollar noticeably weakened, September Brent futures crossed the barrier of 80 dollars a barrel, while demand for commodity currencies increased. The New Zealand dollar rose sharply, despite the fact that the Reserve Bank of New Zealand kept the rate at 5.5% and hinted that it expects further inflation decline from peak levels.   USD/CAD The Bank of Canada, as expected, raised the benchmark rate by 0.25% to 5.00% at Wednesday's meeting.   The forecast for the start of the easing cycle is postponed to the indefinite future, and according to analysts at Scotiabank, another increase should be expected in September or October. The main reason for such estimates is the high likelihood that inflation in Canada is slowing down much slower than in the US, and economic growth is more stable.   The Bank of Canada's updated forecasts claim that GDP will grow by 1.8% this year, 1.5% next year, and 2.5% in 2025, all amid expectations of a recession in the US.   Also, considering that the Canadian labor market has appeared more stable since the time of COVID restrictions, its recovery was faster than in the US. In general, the week is likely to end in the positive for the loonie, there are fewer factors that could turn the Canadian dollar's course towards weakening.   The net short position on CAD has been liquidated, weekly change +0.51 billion, a long position of 270 million has been formed. The positioning is neutral for now, but the trend is towards further demand for the Canadian dollar. The calculated price is noticeably lower than the long-term average.       USD/CAD continues to trade lower, although it has not yet managed to reach the target of 1.3040/60 outlined a week earlier. We expect the pair to fall further, the next target after passing the lower band of the channel will be the technical level of 1.30. USD/JPY The Bank of Japan published its latest regional economic report on July 10. One of the key topics is the comments by the leaders of the BoJ's regional offices regarding the pace of growth in average wages, which is key to understanding the BoJ's position on methods of responding to high inflation. Most of the reports indicate that there is a nationwide increase in average wages by around 5%, in some cases, it rises to 7%, as high inflation reduces real household incomes.   In May, the average wage across Japan grew by 2.5% YoY compared to 0.8% in April. At the same time, comments clearly trace the idea that changing the yield curve control policy means subjecting stability to unjustified risk. Nobody wants to take responsibility, and the question of whether practical steps will be taken at the July meeting remains open.   In regards to the yen exchange rate, this uncertainty does not compel us to expect the pair to strengthen. The net short position on the yen grew by 0.7 billion over the reporting week to -10.5 billion, positioning is confidently bearish. The calculated price is higher than the long-term average and is directed upwards. The yen sharply corrected, the main reason for the decline is the US dollar's weakness and the growth of the Japanese stock market, which continues to receive foreign capital in large volumes.  

USD/CAD approaches key support The Canadian dollar initially weakened after headline inflation fell to a 27-month low, dropping from 3.4% to 2.8%, more than the eyed 3.0% consensus estimate.  The rates that the BOC focuses on, the so-called trim and median core rates, were a little sticky, which could suggest underlying price pressures are still too high.  The Canadian dollar has been rallying but if global slowdown fears increase, that could keep the Loonie locked in its longer-term consolidating range. The Canadian dollar has major support from the trendline beginning last June.  If price breaks below the upward sloping trendline, bearish momentum could target the 1.3020 level.  A daily close below 1.2950 could open the door for selling momentum to target the 1.2750 area. Inflation is making its way towards the BOC’s 2% inflation target, but it seems more tightening might not be needed to get inflation there. If Friday’s retail sales report shows the consumer remains resilient, that could trigger further Canadian dollar strength.  

Canada’s inflation expected to ease US retail sales projected to improve The Canadian dollar is almost unchanged on Tuesday, trading at 1.3204. USD/CAD should show some life in the North American session, with the release of Canadian inflation and US retail sales.     Will Canada’s core inflation fall? Canada releases the June inflation report later today, and the Bank of Canada will be hoping for good news. On an annualized basis, headline inflation is expected to drop to 3.0%, down from 3.4% in June, while the core rate is projected to fall from 3.7% to 3.5%. On a monthly basis, the markets are expecting mixed news. CPI is expected to tick lower to 0.3%, down from 0.4% but core CPI is projected to rise from 0.4% to 0.5%. The Bank of Canada raised rates by 0.25% last week, which brought the benchmark cash rate to 5.0%. The BoC will have some time to monitor the economy, with the next rate meeting on September 6th. The BoC would like to take a pause in September but may have to wait until later in the year if the economy does not show further signs of cooling before the September meeting.   US retail sales expected to climb The US economy is by and large in good shape, despite aggressive tightening by the Federal Reserve in order to curb high inflation. A key driver behind the economy’s strong performance has been consumer spending, which accounts for two-thirds of economic activity. The US releases the June retail sales report later today, with expectations that consumers remain in a spending mood. The consensus estimate for headline retail sales is 0.5% m/m, up from 0.3%, and the core rate is expected to rise 0.3%, up from 0.1%. The retail sales release is unlikely to change expectations that the Fed will raise rates at the July 27th meeting, with a 96% chance of a hike, according to the CME Tool Watch. However, an unexpected reading could lead to a repricing of a September rate hike, which has just a 14% probability. . USD/CAD Technical There is resistance at 1.3205 and 1.3318 1.3106 and 1.3049 are providing support    

Canada’s retail sales expected to slow Former Chair Bernanke says the July hike may be the last increase The Canadian dollar is trading quietly on Friday. In the European session, USD/CAD is trading at 1.3157, down 0.09%. It has been a busy week in the currency markets, with the US dollar rebounding and posting strong gains against the major currencies. The notable exception has been the Canadian dollar, which has held its own against the greenback this week. We could see some movement from USD/CAD in the North American session when Canada releases retail sales for May.   Will Canada’s retail sales point to a softer economy? We’ll get a snapshot of consumer spending later on Friday, as Canada releases the May retail sales report. The markets are bracing for a slowdown in May after an impressive April release. The consensus estimate for retail sales is 0.5% in May, down from 1.1% in April. The core rate is expected to fall to 0.3%, compared to 1.3%. If the estimates prove to be accurate, it would point to the economy cooling down and provide support for the Bank of Canada to take a pause at the next meeting in September.   Is the Fed finally done? The Federal Reserve meets on July 26th and investors have priced in a 0.25% hike as a near certainty. September is less clear, but the markets have priced another hike at just 16%, according to the CME FedWatch tool. Are the markets being too dovish? Fed members have said that inflation isn’t falling fast enough, which could mean that another hike is coming after July. Former Fed Chair Ben Bernanke appeared to side with the market view, saying on Thursday that the July hike could be the final rate increase in the current tightening cycle. Bernanke said that the economy would slow further before the 2% inflation target was reached, but he expected any recession to be mild.   USD/CAD Technical There is resistance at 1.3205 and 1.3318 1.3106 and 1.2993 are providing support  

Canadian dollar was fourth-worst performer in the Group-of-10 currencies. Oil rallies on improved global outlook and Chinese stimulus Gold awaits the Fed decision       Commodities and some commodity currencies caught a bid after China policymakers signaled more stimulus would soon help their struggling recovery, but that didn’t help the Canadian dollar.  Canada’s largest export has seen oil prices catch a bid over the past month, while the loonie has appreciated but mainly been rangebound over the past week.  It looks like FX traders are locked in with the Fed day.  USD/CAD has been consolidating between the 1.3150 to 1.3250 range over the past week.  If risk appetite remains in place post-FOMC decision, the Canadian dollar could make a run towards the 1.3000 level.  A hawkish surprise by the Fed could support an initial above 1.3250 , with 1.34 providing short-term resistance.

Canada added a negligible 1700 jobs in July US nonfarm payrolls almost unchanged at 187,000 The Canadian dollar is showing limited movement on Friday. In the North American session, USD/CAD is trading at 1.3360, up 0.06%. Canadian and US job numbers were soft today, but the Canadian dollar’s reaction has been muted. Canada’s economy sheds jobs After a stellar job report in June, the July numbers were dreadful. Canada’s economy shed 6,400 jobs in July, compared to a 59, 900 gain in June. Full time employment added a negligible 1,700 jobs, following a massive 109,600 in June. The unemployment rate ticked up to 5.5%, up from 5.4%. Perhaps the most interesting data was wage growth, which jumped 5% y/y in June, climbing from 3.9% in May. The rise is indicative of a tight labour market and will complicate the Bank of Canada’s fight to bring inflation down to the 2% target. US nonfarm payrolls slips below 200K It was deja vous all over again, as nonfarm payrolls failed to follow the ADP employment report with a massive gain. In June, a huge ADP reading fuelled speculation that nonfarm payrolls would also surge, and the same happened this week. Both times, nonfarm payrolls headed lower, a reminder that ADP is not a reliable precursor to the nonfarm payrolls report.   July nonfarm payrolls dipped to 187,000, very close to June reading of 185,000 (downwardly revised from 209,000). This marks the lowest level since December 2020. The unemployment rate ticked lower to 3.5%, down from 3.6%. Wage growth stayed steady at 4.4%, above the consensus estimate of 4.2%. What’s interesting and perhaps frustrating for the Fed, is that the jobs report is sending contradictory signals about the strength of the labour market. Job growth is falling, but the unemployment rate has dropped and wage growth remains strong. With different metrics in the jobs report telling a different story, it will be difficult for the Fed to rely on this employment report as it determines its path for future rate decisions. . USD/CAD Technical There is resistance at 1.3324 and 1.3394 1.3223 and 1.3182 are providing support    

USD/JPY declines on expectations BOJ will let rates rise quickly Fed rate cut bets fully priced in by March meeting; implied rate stands at 5.123% Fed’s Bostic noted US employment gains are slowing in an orderly manner, no need for tightening   NFP Day  The US economy should continue to gradually weaken as the labor market softens.  This labor market report showed 187,000 jobs were added to the economy, while wage pressures heated up, and as the unemployment rate dipped to 3.5%.  This NFP report should support the argument that the Fed is done raising rates.  Fed speak post payrolls poured cold water over the hot bond market selloff.  Fed’s Bostic said that the job gains are slowing orderly  and that they have no reason to hike again. Fed’s Goolsbee added that they are getting positive numbers with inflation and that the job market is cooling a little bit.  The risks for more Fed tightening are going away, but that could change with next Thursday’s inflation report.   USD/JPY     Price action on the USD/JPY daily chart show that the potential bearish ABCD pattern that formed a couple days ago is tentatively respecting trendline support at the 141.50 region.  If bearish momentum remains in place downside could target the 140.00 zone.  With the BOJ’s minor tweak to YCC in place and steady US data that supports the economy is weakening, the dollar-yen could see bearishness remain intact.  To the upside, 144.00 remains key resistance     Apple disappoints and Amazon Delivers The last two major tech giant earnings delivered diverging stories.  Amazon crushed it in the second quarter, while delivering financial discipline with lower spending.  The outlook impressed for both ecommerce and their cloud services, while the lower headcount made this a perfect earnings report. Apple told a different story than Amazon as their outlook devices weakened, which is prompting concerns that this might be as good as it gets over the short-term for share prices.  A weakening consumer and a similar fourth quarter is not inspiring investors.  

Canada lost 6,400 jobs in July as the unemployment rate rose for a third straight month Canadian wage pressures jump to 5.0%, which might not let policymakers signal that the peak in rates is in place Crude prices rally for a sixth straight week on OPEC+ determination to keep oil market tight   USD/CAD The past few weeks have not been kind to the Canadian dollar, but that could be changing.  The general rise in the dollar has stemmed from concerns over the US debt situation.  With both the Fed and BOC in similar positions when it comes to their respective tightening cycles, the Canadian dollar seems like it might be better positioned over the short-term as traders unwind their US dollar bets.  The USD/CAD shows the correlation with rising oil prices has not provided much support to the loonie, but that could be changing here.  If bearish momentum accelerates, further downside could target the 1.3300 handle.  The Canadian dollar could remain in oversold territory a while longer, which could support a further decline towards the 1.3250 region.  To the upside, the 1.3400 level provides major resistance.   Oil Crude prices are rising as the dollar drops following a mixed NFP report and as OPEC+ remains committed to keeping the oil market tight.  Saudi Arabia’s decision to extend a unilateral 1-million barrel oil cut did not surprise anyone. Energy traders however wanted to see if Russia would extend their export cut pledge and they did. Oil is at a 3-month high and starting to attract more buyers.  The crude price rally could continue since the US economy remains resilient and if China’s data next week confirms that part of the world’s crude demand is growing. The $85 level should provide key resistance for WTI crude, but if that doesn’t slow the rally, every trader will have their eyes on the $90 level.   Gold Gold prices are rallying as the bond market selloff ends following a mixed NFP report that did not derail some expectations that the Fed is still probably done raising rates.  This jobs day still suggests a soft landing is obtainable but if wage growth remains strong over the next couple of months that could create some problems.  Higher rates for longer is still an environment that gold can thrive in, especially if Wall Street becomes fixated over the deficit

Headline Canadian inflation surges above BOC’s 1-3% target range Mixed report as core inflation falls to 9-month low European Natural Gas skyrockets on fears Aussie labor strikes could disrupt 10% of global LNG exports Canadian CPI The Canadian dollar initially rallied after the July inflation rose back the Bank of Canada’s inflation-control target range of 1% to 3%. ​ This was not entirely hot as both core readings remained subdued. This report means that the BOC will remain data-dependent and that the odds of one more rate hike might be growing. Global growth concerns appear to be dominating the macro theme here and that is why the Canadian dollar is softer. The USD/CAD weekly chart is showing price action is tentatively breaking out above key trendline resistance and the 50-week SMA.   If bullishness remains, upside targets include the 1.3675 region.  To the downside, the 1.3200 remains critical support.   ​​Gas Prices European natural gas futures are surging as the risk for Australian LNG workers to strike grow. ​ If talks collapse, the world could see about 10% of global LNG exports at risk. Europe has bolstered their inventories, but a hot end to summer could lead to a surge in cooling demand. ​ Inventories are not a concern right now, but if we get further disruptions and if weather trends in the summer and winter lead to many spikes in demand, we could see natural gas surge significantly higher. ​   Jackson Hole ​We are a week away from Jackson Hole and Wall Street is not expecting any major surprises. ​ Fed Chair Powell will remain upbeat regarding the progress with bringing inflation down. July PCE data to be sticky and keep risk of one more hike on the table. Given the US economic resilience backdrop, the Fed will want to keep optionality here, so an end of tightening will not be signaled. ​   Oil Crude prices continue to pullback after both disappointing Chinese industrial production data and the German ZEW survey that showed concerns with recovery are elevated. The oil market might remain tight, but most of the headlines are turning bearish for the demand side. ​ Oil’s pullback might need to continue a while longer before buyers emerge. ​   Gold Gold prices are falling as real yields continue to rise. ​ Gold could be stuck in the house of pain a little while longer if the bond market selloff does not ease. ​ The 30-year Treasury yield rising above 2% is a big red flag for some traders. ​ We haven’t seen yields on the 30-year at these levels since 2011, which is making non-interest bearing gold less attractive even as China’s property market rattle markets.      

Canadian Dollar Experiences Biggest Intra-day Gain Since End of July. The Canadian dollar has been experiencing a steady weakening against the US dollar since mid-July. The ongoing bullish uptrend of USD/CAD is meeting resistance as foreign exchange traders speculate on the possibility of the Fed and BOC being close to completing their tightening cycles with one more rate hike. Major resistance at the 1.36 level could hold, potentially leading to a pullback targeting the 1.3454 level, the current 200-day SMA. The upcoming week might bring a hawkish stance from Fed Chair Powell, which could revive the king dollar trade. Oil Market Rally Fizzles Amid Strong Dollar Trade and Rising Real Yields Crude oil prices initially rallied in the morning, driven by expectations of a tight oil market due to current backwardation trends. However, the surge in real yields and a potential strong dollar resurgence after Jackson Hole are contributing to the reversal of the oil price rally. While risks to crude demand are emerging, the oil market's tightness should provide some support.     Dollar supported as 10-year Treasury hits 4.34%, highest levels since financial crisis Oil market to remain tight, but so far offers little help for the loonie Loonie was having biggest intra-day gain since end of July   The Canadian dollar has been steadily weakening against the greenback since the middle of July.  The USD/CAD bullish uptrend appears to be facing some resistance as FX traders anticipate both the Fed and BOC are possibly one more rate hike away from being done with tightening. It appears that major resistance from the 1.36 level might hold, so if a pullback emerges, downside could target the 1.3454 level, which is currently the 200-day SMA.  If markets get a very hawkish Fed Chair Powell this week could see the return of the king dollar trade.   Oil The morning oil price rally is fizzling as the strong dollar trade might be back given the surge in real yields.  Crude prices were much higher in early trade on expectations that the oil market would remain tight given the current backwardation. Risks to the crude demand outlook are growing, especially after China disappointed with last night’s easing, but for now a tight market should keep oil supported. The biggest risk for energy traders is if we see a massive wave of dollar strength after Jackson Hole. Right now there are so many oil drivers and most support higher prices. Heating oil prices are elevated and that might continue.  Iran nuclear talks won’t be having any breakthroughs anytime soon. Gulf of Mexico oil production could be at risk as a few formations build on the Atlantic.     Gold Gold’s worst enemy is surging real yields.  It was supposed to be a quiet start to the week for gold with China coming to the rescue and some calm before Friday’s Jackson Hole speech by Fed Chair Powell.  There is a little bit of nervousness from the long-term bulls as gold futures are getting dangerously close to the $1900 level, which could trigger a wave of technical selling.  It seems gold needs some disorderly stress in financial markets for it to rally and that doesn’t seem like it is happening anytime soon. The outlook for the next few quarters is cloudy at best, but it seems that there is still too much strength in the economy that is dampening safe-haven flows for gold.  It doesn’t help that hedge funds are throwing in the towel for gold, which now has net-long positions at a five month low.        

Canadian retail sales post weak 0.1% gain Markets eye Jackson Hole Symposium as tightening cycles near end The Canadian dollar remains under pressure on Wednesday. In the North American session, USD/CAD is trading at 1.3554, up 0.04%. Earlier, the Canadian dollar fell below the 1.36 line for the first time since May 31st.   Canada’s retail sales stagnant in June Canada’s retail sales for June barely moved, with a gain of just 0.1% m/m. This was unchanged from the May reading, which was downwardly revised from 0.2%, and just above the consensus estimate of zero. On a yearly basis, retail sales slipped 0.8% in June, compared to a gain of 0.2% (revised downwards from 0.5%) and shy of the estimate of 0.3%. The data indicates that consumer consumption is cooling down as higher interest rates continue to filter through the economy. Canada’s GDP in the first quarter was solid at 3.1%, but second-quarter growth is expected to be much more modest, at around 1%. Consumer spending has been a key factor in the Bank of Canada’s rate decisions. Earlier in the year, stronger-than-expected consumer spending resulted in the BoC raising interest rates in June and July. Today’s soft retail sales figures will provide support for the central bank to take a pause at the September 6th meeting, with GDP the final key release ahead of that meeting.   Markets await Jackson Hole There has been a whole lot happening this week and investors will be hoping for some interesting comments from central bankers who are meeting this week in Jackson Hole, Wyoming. Many of the major central banks, including the Federal Reserve, are winding up their rate-tightening cycles and Jackson Hole has often served as a venue for announcing shifts in policy. That said, Fed Chair Powell has insisted that the fight against inflation is not done, although the dark days of high inflation appear to be over. There is talk in the markets of the Fed trimming rates next year, but I doubt that Powell will mention any cuts to rates, when he is yet to acknowledge that the Fed is done tightening.   USD/CAD Technical USD/CAD put strong pressure on the resistance at 1.3606 earlier. Above, there is resistance at 1.3660 1.3522 and 1.3468 are providing support    

Global bond yields have noticeably fallen in the last 24 hours after softer-than-expected preliminary PMI data. A significant drop in activity has been noted in the eurozone's services sector, especially in Germany. This reduces the chances of the European Central Bank raising rates in September and weighs on the euro. On Thursday, the market will focus on the report on durable goods orders and the weekly unemployment benefits. USD/CAD Retail sales in Canada showed weak results, leading to a decline in yields of short-term Canadian government bonds and a decrease in the CAD exchange rate.       At the same time, the pace of growth in average wages remains high, as the labor market supply lags behind demand. To curb inflation, there needs to be a swift deceleration in wage growth, which is only possible in conditions of a saturated labor market or a general economic slowdown. Another route is an increase in productivity, which remains low with no signs of improvement yet. The net short position on CAD increased by CAD 799 million for the reporting week, reaching CAD -845 million. Positioning is bearish, and the price is moving upwards.   A week earlier, we assumed that the upward movement would progress, and the main target is the upper band of the channel at 1.3690/3720. This target remains relevant. The consolidation is due to technical reasons rather than fundamental ones, and after the consolidation or minor correction concludes, we expect to see further growth.   We perceive support in the middle of the channel at 1.3360/80, but a potential decline to this zone before turning upwards seems unlikely. USD/JPY The core inflation rate (excluding fuel and food prices) in July accelerated from 4.2% to 4.3%, indicating that the Bank of Japan's cautious policy hasn't yielded significant results yet. The BOJ is the only one among major central banks continuing an ultra-soft policy, based on the assumption that inflation largely has an imported nature and will decrease as soon as global energy prices stabilize and the previously disrupted supply chains of goods and raw materials are restored       Such an approach might be justified, but the growth in core inflation indicates that there's more to it, and the Bank needs to be very cautious in choosing its next steps. The Ministry of Finance plans to allocate 28,142.4 billion yen to service the national debt in the 24th fiscal year, which is 2,892.1 billion yen more than in the 23rd fiscal year. The rate used to calculate JGB bond servicing costs remained at 1.1% for seven years, from the 17th to the 23rd fiscal year. If the Bank of Japan begins to raise the accounting rate, the calculated rate for servicing will also be increased for the first time in 17 years. Currently, there are no problems in servicing the national debt, but by the end of the 22nd fiscal year, the outstanding volume of JGBs amounted to a staggering 1,027 trillion yen. If Japan's economy continues to grow, increasing tax revenues will allow the debt to be serviced without significantly increasing borrowing.   However, if the global economic crisis intensifies, an increase in the BOJ's rate will lead to a rapid increase in the government's debt servicing expenses. For now, we must assume that any hints at an interest rate hike will lead to the yen's growth, complicating the debt servicing situation due to a deteriorating trade balance and reduced budget revenues. The Japanese government fears this scenario, hence any comments on monetary policy will continue to be very cautious. In the current circumstances, the yen is more likely to depreciate than strengthen. The net short position on JPY was slightly adjusted by 300 million, to -6.952 billion, with positioning decidedly bearish. The price is above the long-term average, the trend remains bullish, but the chances of an extended consolidation or a shallow correction has increased.     We expect an uptrend from the USD/JPY, with the upper band of the channel at 147.80/148.10 as the target. The risk of a deeper correction to the middle of the channel at 142.50/80 has increased, but the long-term trend remains bullish, and there's no reason to anticipate a reversal at the moment.  

Canada’s GDP expected to ease in Q2 US nonfarm employment payrolls expected to dip to 177,000 The Canadian dollar is calm in the European session, trading at 1.3500, down 0.07%. I expect to see stronger movement from USD/CAD in the North American session, as Canada releases second-quarter GDP and the US publishes the July employment report. Canada’s GDP expected to slow in Q2 Canada usually releases employment reports on the same day as the US, but Canada’s July jobs report won’t be released until next week. Instead, today we have Canada’s GDP, a key release, along with the US employment release. Canada’s economy rebounded in the first quarter, as GDP rose 0.8% q/q. This beat the consensus estimate of 0.4% and added support to the case for the Bank of Canada raising rates at the September 6th meeting. However, today’s GDP report could chill rate hike expectations if the economy took a step backward in the second quarter. The consensus estimate for Q2 GDP stands at 0.3% q/q, which would indicate weak economic growth. If GDP is stronger than expected, the odds of a rate hike will likely increase. The GDP report is the final key release out of Canada prior to the rate meeting, which adds significance to the GDP release. Investors will also be keeping a close eye on the July US employment report, highlighted by nonfarm payrolls. On Wednesday, ADP Employment Change fell sharply to 177,000, down from a revised 371,000. The nonfarm payroll report is expected to decline slightly to 170,000, compared to 187,000 in the previous reading.   If nonfarm payrolls is within expectations, it will mark the third straight month of gains below 200,000, a clear sign that the US economy is cooling. This would not only cement an expected pause by the Federal Reserve next week but would also bolster the case for the Fed to hold rates for the next few months and possibly into 2024. . USD/CAD Technical USD/CAD tested resistance at 1.3523 earlier. Above, there is resistance at 1.3580 1.3444 and 1.3377 are providing support  

Canadian growth shocker confirms central bank to pause Canada’s economy surprisingly contracted in the second quarter with consumer spending slowing sharply and residential investment collapsing. Together with a cooling labour market, this should ease the Bank of Canada's inflation fears and lead to a no-change decision on 6 Sep. Still, the USD/CAD rally appears overdone, and we expect a correction soon.   We expect a pause this week Ahead of last Friday’s data, analysts were favouring a no-change outcome with just three out of 32 economists surveyed by Bloomberg expecting a 25bp interest rate increase while overnight index swaps suggested the market saw only a 15% chance of a hike. This was despite headline inflation surprising to the upside in July and the BoC signalling at the July policy meeting that it continued to believe inflation would only return to 2% by mid-2025 and that the door remained open to further hikes. The GDP numbers and the manufacturing PMI that we got on Friday have only cemented the no-change expectation. Markets are now pricing little more than a 1% chance of a hike after the economy contracted 0.2% annualised in 2Q versus expectations of a 1.2% increase while 1Q GDP growth was revised down from 3.1% to 2.6%. Consumer spending rose just 1% annualised while residential investment fell 8.2% to post a fifth consecutive substantial contraction. Net trade was also a drag, but there was at least a decent non-residential investment growth figure of 10.3%. Meanwhile, the manufacturing PMI slipped to 48.0 from 49.6 to post its fourth consecutive sub-50 (contraction) reading.   Canadian unemployment and inflation   Given the economy lost jobs in July we completely agree that the BoC will leave rates unchanged this month after having resumed hikes in June and July following a pause since January. Nonetheless, the BoC is likely to leave this as a hawkish hold given that policymakers are yet to be fully convinced they’ve done enough to return inflation sustainably to 2% given the recent stickiness seen. At a bare minimum, we will get a messaging of rates staying “higher for longer”, but given the perilous state of the Canadian property market and signs of spreading weakness globally, we do expect rate cuts to come onto the agenda by March next year.   CAD weakness not justified USD/CAD has rallied 3% since the start of August, broadly in line with the general strengthening in the US dollar, but in contrast with short-term USD:CAD rate differential dynamics. While USD/CAD rose in the past month from 1.32 to 1.36, the USD:CAD two-year swap rate differential was relatively stable in the -50/-40bp range throughout August, and only tightened to -30/-35bp after Canada’s poor 2Q GDP report.   Our short-term valuation model, which includes swap rate differentials as an endogenous variable, shows that USD/CAD is trading more than 2% over its fair value, a rather unusual mis-valuation level for the pair. Incidentally, CFTC data shows that speculators have moved back into bearish positioning on the loonie in recent weeks, with net-shorts now amounting to 9% of open interest.   USD/CAD is overvalued   We don’t expect the BoC to turn the tide for CAD, but the recent weakness in the loonie appears overdone, and technical indicators suggest a rebound is on the cards. We still expect USD/CAD to end the year close to 1.30 as CAD should benefit from the most attractive risk-adjusted carry in the G10, even without any more hikes by the BoC.    

Canada’s GDP contracts in second quarter US nonfarm payrolls, wages point to weak US labour market The Canadian dollar is unchanged early in Monday’s North American session, trading at 1.3594. Canada’s GDP unexpectedly soft in Q2 The Canadian dollar posted gains throughout last week but surrendered all of those gains on Friday after second-quarter GDP was softer than expected. Canada’s economy contracted in the second quarter by 0.2% y/y, much weaker than the consensus of a 1.2% gain. The Bank of Canada was also taken by surprise, as it had projected a gain of 1.5%. The economy has slowed sharply since the first quarter, which showed GDP at a revised gain of 2.6%. The BoC’s rate hikes continue to filter throughout the economy, which may be in a slight recession, as June GDP contracted by 0.2% and July is expected around zero. The GDP report was the last major domestic release before the BoC meeting on Wednesday. The soft data has cemented a pause from the BoC, after two consecutive meetings in which the BoC raised rates by a quarter-point but said that the decisions were a close call between a hike and a hold. The BoC odds for a hold have jumped to 97%, up from 78% prior to the GDP release. With a pause a virtual certainty, investors’ focus will be on the rate statement. Goldman Sachs is projecting a pause and one final rate hike in October.     In the US, the August employment report pointed to a cooling labour market. Nonfarm payrolls came in at 187,000, the third straight release below 200,00. Wage growth fell to 0.2% in August, down from 0.4% in July and below the consensus of 0.3%. The weak jobs report raised the odds of a Fed hold at the September meeting to 93% according to the FedWatch tool, up sharply from 78% just a week ago. . USD/CAD Technical USD/CAD is putting pressure on support at 1.3573. Below, there is support at 1.3509 1.3657 and 1.3721 are the next resistance lines  

CAD: An unsurprising pause by the Bank of Canada today USD/CAD printed the highest level since March yesterday, briefly breaking above the 1.3660 April high following another round of USD strengthening and generalised softness in pro-cyclical currencies. We don’t expect today’s Bank of Canada meeting to be a turning point for the loonie, as policymakers should take into account the recent weakness in growth and the cooling labour market and opt for a pause – here is our full preview. The dovish move in market expectations has already happened and markets are expecting no change today, while a modest 9bp is left in the CAD OIS curve before year-end. This means that the downside risks for CAD from today’s pause should be limited, also because the BoC will likely want to avoid categorically closing the door to more tightening just yet. The rise in USD/CAD in the past month has not been mirrored by a divergence in the USD/CAD short-term divergence of similar magnitude, and the pair is currently 2.5% overvalued according to our short-term fair value model. While a turn in US activity data likely remains necessary to pull the trigger on a USD correction and close the mis-valuation gap, we think that further USD/CAD gains will prove increasingly unsustainable. A retracement to the 1.3460 200-day MA is our preferred bias for September.

Loonie pares losses alongside oil price surge Oil rises on OPEC+ action, but may remain a choppy trade on global growth concerns and rising Non-OPEC production $100 oil risk will remain on table throughout the winter   USD/CAD Daily Chart   After having its worst slide in a month, the Canadian dollar continues to weaken as investors digest the surprise Canadian contraction in the second quarter.   BOC rate hike bets are fading away but an outperformance with European currencies could limit the downside in the loonie.  Against the dollar, the Canadian currency might have an uphill battle.  Price action on the USD/CAD daily chart has extended above the 1.3600 level and is approaching key resistance at the 1.3700 handle, which was respected in both April and May. The Canadian dollar benefited from the surge in oil prices, but that might not be sustained as traders might focus on the economic outperformance with the US to the Canadian economy.  The US might see 5% or higher growth in Q3 and possibly above 2% growth in Q4, while Canada might be in the middle of a technical recession. The rally from 1.32 to 1.36 has been mostly a one-way move, so if sentiment changes for the US economy, a steep correction could quickly emerge.  The 1.3465 region would provide major support, followed by the psychological 1.3400 level. Oil   While global growth concerns intensify, OPEC+ appears to be committed to keeping the oil market tight no matter the cost to the global economy.  Brent crude surged above the $90 level after OPEC+ producers extended supply curbs until year-end. It looks like the Saudis and Russians are on the same page about keeping the oil market tight, with the Saudis extending their voluntary 1 million bpd cut to the end of the year, while the Russians will extend their 300,000 bpd oil export cut.     While the mood of markets was downbeat given the soft China and European PMIs, oil was only down modestly.  Expectations remain elevated that the US economy will have a solid third quarter and decent fourth quarter, which means recession risks will have to wait possibly till next year. China, the world’s second largest economy is adjusting to the end of easy money alongside subdued growth. The political landscape has made China less investable and that is hampering the growth outlook. With a mixed demand outlook heading towards the winter, the risks are still to the upside for oil prices.  The International Air Transport Association is seeing shorter delivery times, which could be a good sign that economic activity is increasing. WTI Crude Daily Chart   The supply side currently supports prices to remain capped around the $90 a barrel level as non-OPEC output rises, offsetting a good portion of OPEC’s extended cuts.  But if any supply outages emerge or if expectations grow for a cold winter, we could see $100 oil rather easily.

Hawkish hold from the Bank of Canada, but we think rates have peaked The BoC left the policy rate at 5% but warned that with inflation pressures remaining elevated it could yet hike again. We don’t think they will need to as high borrowing exposure and lagged effects of policy tightening increasingly weigh on an economy that is already showing some cracks. The negative implications for CAD are, however, limited.   BoC leaves the door open for more Having resumed hikes in June and July following a pause since January, the Bank of Canada opted to leave interest rates unchanged today at 5%. This was the widely expected outcome with just two of 30 or so economists expecting a hike and financial markets barely pricing 2bp of potential tightening following data showing the Canadian economy contracted in the second quarter, the manufacturing PMI moved deeper into negative territory and the unemployment rate crept higher. This was acknowledged by the BoC with the accompanying statement recognising that the economy has “entered a period of weaker growth" and that labour market tightness "has continued to ease gradually". Yet inflation remains well above the BoC’s target and the statement mentioned "broad based" pressures, with rising gasoline prices meaning headline inflation is likely to stay higher than the BoC was forecasting in the near term. As such, we have a hawkish hold with the BoC prepared to hike again 'if needed". We think they won't need to and rates have peaked at these levels as high exposure to borrowing and the lagged effects of monetary policy tightening become increasingly apparent.   CAD steady after the announcement The loonie was little changed against the dollar after the Bank of Canada announcement today. However, CAD is trading firmer than most other G10 pairs as strong ISM figures out of the US sent USD higher against most pro-cyclical currencies. The CAD OIS curve after the meeting shows markets are pricing in around 10bp of tightening by the BoC, meaning that if we are right and the Bank does not hike rates again, the repricing lower in Canadian rate expectations should not materially hit the loonie. USD/CAD has plenty of room to correct on the back of rate-gap and commodity dynamics, but solid US activity data is likely to keep the pair supported in the near term. 

CAD: Jobs prints are volatile, but BoC should be done anyway Canadian jobs figures for the month of August will be released today. The headline employment number has been quite volatile, with the past four months having seen two very strong prints (April and June) and two sub-zero ones (May and July). However, the unemployment rate has ticked up in each of the past four months, from 5.0 in April to the current 5.5%. The consensus numbers are 17.5k and 5.6% for today. Outside of the initial reaction for CAD, the implications of today’s figures beyond the very near term should not be very significant, barring a very strong read. As discussed in our Bank of Canada meeting review note, we think rates have peaked in Canada, in particular following the dismal 2Q GDP reading (-0.2% quarterly, annualised). USD/CAD is expensive, trading around 2.3% above its near-term fair value, according to our calculations, but any decisive turn lower remains tied to a turn in US activity data rather than domestic inputs on the Canadian side. 

Canada expected to have shed 6,400 jobs BoC’s Macklem says rate increases may be needed to lower inflation The Canadian dollar is steady on Friday in what should be a busy day. In the European session, USD/CAD is trading at 1.3670, down 0.12%. Canada releases the August job report later today, with the markets braced for a decrease of 6,400 in employment. The US dollar has been on a tear against the major currencies since mid-July. The Canadian dollar has slumped, losing about 450 basis points during that span. The Canadian economy hasn’t been able to keep pace with its southern neighbor, and that was made painfully clear as GDP contracted by 0.2% in the second quarter, below expectations. The deterioration in economic growth is a result of a weak global economy as well as the Bank of Canada’s steep tightening cycle. After back-t0-back increases, the BoC opted to pause at this week’s meeting and held the benchmark cash rate at 5.0%. Governor Macklem likes to use the term “conditional pause”, which means that a break from rate hikes will depend on economic growth and inflation levels.   At this week’s meeting, the BoC’s rate statement was hawkish, warning that inflation was too high and not falling fast enough. This was a signal that the door remained open to interest rate increases. Macklem was more explicit on Thursday, stating that further rate hikes might be needed to lower inflation and warning that persistently high inflation would be worse than high borrowing costs. The markets are more dovish about the BoC’s rate path, given that the economy is cooling and the central bank will be wary about too much tightening which could tip the economy into a recession. The markets have priced in a 14% probability of a rate hike at the October meeting.   USD/CAD Technical USD/CAD is testing resistance at 1.3657. The next resistance line is 1.3721 1.3573 and 1.3509 are providing support  

Instead of declining, the US ISM Services PMI rose to 54.5 in August from 52.7 in July. The report recorded growth in all key parameters – employment, new orders, and even prices. Apparently, increased levels of consumer spending had become the main reason for the rise, but the question of whether consumer activity will remain high in the coming months remains debatable. The US ISM data contrasts with the rest of the world, as similar gauges in China, the eurozone, and the UK, showed a decline, and the market interprets the results in favor of the US dollar.   Take note that the final reading from S&P Global Business on the US services sector PMI was slightly lower than the preliminary one - 50.5 vs. 51.0, which sharply contradicts the ISM readings. This imbalance will be resolved next month. The Federal Reserve's Beige Book showed that economic and labor market growth slowed in July and August, while many businesses expect wage growth to slow down in the near future. Here, too, we see a discrepancy with the ISM assessment, especially in light of the Fed's policy of restraining consumer demand as one of the key factors in inflation.   The GDPNow model estimate for real GDP growth by the Federal Reserve Bank of Atlanta in the third quarter of 2023 is 5.6 percent on September 6. Take note that this is a very high figure.   In summary, the general fundamental story suggests that the US is still a bit stronger compared to the rest of the world, and this will be the catalyst for the dollar strength, which remains the primary favorite in the currency market.   USD/CAD As anticipated, the Bank of Canada held its key overnight interest rate unchanged at 5%. Therefore, changes in policy are deferred to the next meeting on October 26, where, among other things, forecasts will be updated. In the accompanying statement for the July 12 meeting, it was stated that the rate was raised due to accumulation of evidence that excess demand and elevated core inflation have proved to be persistent. This time, the wording has been changed to a more neutral tone: "With recent evidence that excess demand in the economy is easing, and given the lagging effects of monetary policy...". This implies that the BoC believes that the measures taken earlier are yielding results and no changes are needed. Only time will tell whether this is really the case, but one thing is clear – the Canadian dollar has become more susceptible to further weakness. At least, concern about the persistently high core inflation was specifically emphasized. At the moment, the probability of a rate hike in October is estimated at 25%, which is too little for a bullish revision of CAD forecasts. The net short CAD position increased by 0.3 billion to -1.2 billion over the reporting week, indicating bearish positioning. The price is significantly above the long-term average, and there are no signs of a reversal. USD/CAD continues to gradually rise. The pair has reached the nearest target that we mentioned in the previous review, and it appears that it will eventually test the upper band of the 1.3700/20 channel. It is likely for the pair to break above the channel, with 1.3857 as the medium-term target. From a technical perspective, after testing the upper band of the channel, we can expect a retracement towards the channel's midpoint. However, fundamental indicators suggest further growth.      

BOC rate hike odds for the October 25th meeting rise from yesterday’s 23.9% to  28.8% Hours worked climbed to the highest level since February CAD futures open interest rise to best levels since mid-March Canada’s economy isn’t quite ready to cool.  The latest Canadian employment report showed hiring bounced back in August, doubling expectations. The near 40,000 added jobs exceeded the 17,500 consensus estimate and proved that the prior month’s unexpected shedding of jobs was not the beginning of a new trend.  The BOC will pay close attention to the wage growth acceleration of 5.2%, which was expected to soften to 4.7%. There is a lot of data before the October 25th BOC meeting, but it still seems like they’ve reached the terminal rate for this tightening cycle.   Open Interest in Canadian dollar futures The Canadian dollar is the top performing G10 currency and that could continue given how the futures market is positioned.  The last time open interest for Canadian dollar futures were at these levels was the middle of March, which was when USD/CAD started its decline from around the 1.37 level to the 1.3300 area.   Canada’s strong jobs report showed full-time employment rebounded from 1,700 to 32,200, while part-time work created 7,800 jobs, much better-than-the prior month’s decline of 8,100 positions.  The unemployment rate held steady at 5.5%, which was better than the expected increase of 5.6%.    The majority of the job gains stemmed from the professional and technical services, and construction.  The regions that benefited the most were Alberta, British Columbia and Prince Edward Island.  Nova Scotia was the only region that lost jobs.  While the job gains are a positive sign, when you figure in population growth, this pace won’t cut it for keeping the unemployment rate steady.  About 50,000 jobs per month would be needed to support a steady unemployment rate.   USD/CAD 60-minute chart After breaking down below the 1.3650 level, bearish momentum is slowing down ahead of the 1.3600 level.  If the start of next week does not include a risk averse start, the Canadian dollar could have a strong move here.  Unless the uptrend line (which started in July) is broken substantially to the downside, the prevailing bullish trend may remain in place.      

Canadian dollar rally runs out of steam ahead of US inflation report Brent crude rallies over $91, highest levels since November BOC rate hike expectations hover around 34.3% for October 25th  meeting/ 17.5% for the December 6th meeting.       The USD/CAD (a daily chart of which is shown) as of Tuesday (9/12/2023) has shown bullish correctiveness is accelerating on the break of key trendline support that has been since July 31st.  If a bearish bias remains in place, downward momentum could target the lower boundaries of the Bollinger Bands range at 1.3486, followed by the 200-day SMA at 1.3466.  To the upside, the 1.3650 region will provide key resistance. Today’s price action saw the US dollar soften after a small business survey optimism drifted lower and the Canadian currency benefitted from surging oil prices.  The key for loonie will likely stem with what happens with both the US inflation and retail sales reports.  If investors grow confident that the US economy is weakening and that inflation pressures remain subdued, the dollar may tumble even further.  If US economic resilience drives rate hike expectations for the Fed to hike again in November, the dollar might have a path towards the 1.37000 level. NFIB The US small business sentiment optimism index showed inflation remains a top business problem.  The National Federation of Independent Business index fell from 91.9 to 91.3, which was also lower than the expected decline of 91.5.  The outlook is not inspiring for small business as NFIB economist noted, “With small business owners’ views about future sales growth and business conditions discouraging, owners want to hire and make money now from strong consumer spending.” The report highlighted that the net percent of owners raising average selling prices rose 2 points from July to a net 27% (seasonally adjusted). 23% of participants viewed inflation as their single most important problem in operating their business, which was higher than last month’s 21%. Small businesses have a rough road ahead of them and that should get worse if commodity prices remain elevated and as credit conditions tighten. Oil Crude prices are rallying after the OPEC monthly report showed the oil market is going to be a lot tighter than initially thought.  Heading into the OPEC+ decision at the end of last month, expectations were for the global market to have a supply deficit of just over 1 million barrels a day. ​ After the OPEC+ it was generally viewed that the supply deficit would be around twice that amount.  OPEC is now anticipating a 3.3 million barrels a day deficit over the next 3 months, which is one million more bpd of a deficit than some energy traders were anticipating. The oil market could get even tighter if the data starts to improve for Europe or China, which means we could easily see Brent crude make a run towards the $100 a barrel level.    

CAD: Inflation data important after strong jobs numbers The second quarter growth figure shock seemed to have put an end to the Bank of Canada’s mid-2023 tightening reboot. The BoC did leave the door open for more hikes if needed on 6 September, but the deterioration in the economic outlook and less concerning inflation picture all pointed to an extended pause. The August jobs figures were, however, very strong: a 40k employment jump (twice the consensus number), an unchanged unemployment rate after three consecutive months where it inched higher, a big rise in full-time hiring and accelerating wage growth. With gasoline prices having risen, headline inflation is expected to have accelerated from 3.3% to 3.8% in August. Markets and the BoC will look at the trim and median measures, which are seen stabilising around 3.7%. Any upside surprise in the inflation figures would likely put a BoC rate hike back on the table, even though it is not our base case at the moment to see another BoC move. Markets are pricing in 15bp to a peak, and we could see that being pushed to 20bp or higher after a strong CPI read today. Given its stretched overvaluation, we had been calling for a correction in USD/CAD for a while: the pair is reconverging (i.e., dropping) with short-term fundamentals now, and a potential post-CPI rally could see it slip further to 1.3400.

Our favourite currency in 2024, however, is the Australian dollar. High US rates and weak Chinese growth have repressed it and made it the most undervalued currency in the G10 space. The release valve of lower US rates should allow the Aussie dollar to lead the currency recovery against the US dollar. A hawkish Reserve Bank of Australia should not hurt either. We are also bullish on the NZD/USD and are interested in whether the new government changes the Reserve Bank of New Zealand’s remit – a potentially bullish factor for NZD. USD/CAD should come lower too, and while Canada’s high yield helps, its proximity to the US may be more of a burden in 2024. On the subject of carry, lower volatility favours the carry trade and also the yen as a funding currency. However, we have some quite aggressive forecasts for a lower USD/JPY on the back of a weaker dollar and finally a proper Bank of Japan exit from ultra-loose policy. Big policy changes in Japan can have a big impact on USD/JPY as in 2013. Let’s see how the start of 2024 progresses and whether the BoJ is prepared to make its move after all.  

Canada’s inflation rate falls to 3.1% Fed minutes indicate rates to remain restrictive The Canadian dollar continues to have a quiet week. In the North American session, USD/CAD is trading at 1.3723, up 0.14%. Canada’s inflation declines to 3.1% Canada’s inflation rate fell to 3.1% y/y in October, down sharply from 3.8% in September and below the consensus estimate of 3.2%. Monthly, inflation edged up to 0.1%, up from -0.1% in September and matching the consensus estimate. Two key core rate gauges dropped to an average of 3.55%, down from 3.8% in September. The drop in inflation is an encouraging sign for Bank of Canada policy makers that its rate policy is working, as inflation continues to head lower. For the markets, the decline will support expectations that the current tightening cycle is done and that the central bank will trim rates in mid-2024. The inflation print has likely closed the door on further hikes, but don’t expect to hear that from anyone at the BoC, which doesn’t want to give a false impression that inflation has been beaten, as there is still more work to do to reach the 2% target. Fed preaches caution At the November meeting, Fed Chair Powell said in his post-meeting remarks that the Fed would have to exercise caution. Tuesday’s FOMC minutes echoed Powell’s comments and also mentioned the need to “proceed carefully”. The minutes gave no indication that members had discussed rate cuts, noting that members felt that the current policy was restrictive and pushing inflation lower. The markets have a different take and have priced in a rate cut sometime in mid-2024, with inflation falling and the US economy continuing to lose steam. The Fed will likely continue to sound hawkish and warn that rate hikes are still on the table, but is anyone listening?   USD/CAD Technical USD/CAD is testing resistance at 1.3741. Above, there is resistance at 1.3776 There is support at 1.3660 and 1.3628