Fundamental
Overview
The USD came under some
pressure on Friday as the risk-off sentiment caused by Trump’s threat of
substantially increasing tariffs on China weighed on Treasury yields. Over the
weekend, we had more soothing comments from Trump and other US officials which
triggered a recovery in risk sentiment.
The positive mood is
weighing a bit on the greenback amid lack of bullish catalysts. Domestically,
nothing has changed for the US dollar as the US government shutdown continues
to delay many key US economic reports. The dollar “repricing trade” needs strong
US data to keep going, especially on the labour market side, so any hiccup on
that front is likely to keep weighing on the greenback.
The market pricing shifted
more dovish with 47 bps of easing by year-end and 115 bps cumulatively by the
end of 2026. The BLS announced last week that it will release the US CPI report
despite the shutdown on October 24, so that’s going to be a key risk event. In
case we get hot data, we will likely see a hawkish repricing in interest rates
expectations with the December cut being priced out. Conversely, a soft report
shouldn’t change much in terms of pricing, but it will likely weigh on the
greenback anyway.
On the CAD side, we got a
strong employment report on Friday beating expectations by a big margin although
the unemployment rate remained unchanged. The BoC cut interest rates by 25 bps
as expected at the last meeting and stressed the need to remain attentive to
risks and setting policy on a meeting-by-meeting basis. The probabilities of a
cut in October fell to 56% following the employment report but we still have
the CPI report before the next meeting.
USDCAD
Technical Analysis – Daily Timeframe
On the daily chart, we can
see that USDCAD reached the key 1.4018 level last week and pulled back. This is
where we can expect the sellers to step in with a defined risk above the level
to position for a drop into new cycle lows. The buyers, on the other hand, will
want to see the price breaking higher to increase the bullish bets into the
1.43 handle next.
USDCAD Technical
Analysis – 4 hour Timeframe
On the 4 hour chart, we can
see that we have an upward trendline defining the bullish momentum. The buyers
will likely lean on the trendline with a defined risk below it to keep pushing
into new highs, while the sellers will look for a break lower to increase the
bearish bets into new lows.
USDCAD Technical
Analysis – 1 hour Timeframe
On the 1 hour chart, we can
see that we a support zone around the 1.3975 level. If the price gets there, we
can expect the buyers to step in with a defined risk below the support to
position for a rally into new highs. The sellers, on the other hand, will look
for a break lower to extend the pullback into the trendline. Data like Retail Sales and Jobless
Claims won’t be released. We will have lots of Fed speakers though with Fed
Chair Powell scheduled for tomorrow. Given the lack of key US data though, it’s
very unlikely to see a change in stance. For now, we know that only the US CPI
will be published despite the shutdown, which is scheduled for Friday October
24
