It looks like the market is
taking some breather after an incredible rally in the US Dollar. This week was
pretty empty on the data front, and we haven’t got any meaningful catalyst. The
main culprit for the US Dollar strength has been the rally in long term
Treasury yields.

The yield curve has been
bear-flattening which is what you would expect with higher growth and
potentially higher inflation expectations. There’s been a good argument that
the markets have been already positioning for a Trump victory which is expected
to strengthen the higher growth and less rate cuts expectations.

For now, this is the trend
and it’s generally a bad idea to fight such trends without a strong catalyst.
Unfortunately, we don’t have much left for October as the main events will be
in the first weeks of November when we will get the top tier economic reports,
the US elections and the FOMC decision.

On the CAD side, the BoC
cut interest rates by 50 bps as expected and signalled more rate cuts to
come with the size of the cuts being guided by incoming data. The market sees
an 85% probability of a 25 bps cut in December (15% for a 50 bps cut) and then three
more 25 bps cuts in 2025.

USDCAD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDCAD is testing the key resistance zone around the 1.3860 level. This
is where we can expect the sellers to step in with a defined risk above the resistance
to position for a drop back into the 1.36 support. The buyers, on the other
hand, will want to see the price breaking higher to increase the bullish bets
into new highs.

USDCAD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the momentum got weaker around the key resistance as the price action
formed a rising
wedge right at the resistance. This generally signals a pullback or even a
reversal.

In this case, it gives the
sellers a bit more confidence to target at least a pullback into the 1.3750
level with a break below the bottom trendline
increasing the conviction. The buyers, on the other hand, will likely lean on
the bottom trendline to position for a break above the resistance and the top
trendline.

USDCAD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can
see more clearly the recent price action with the rejections around the
resistance. There’s not much else we can add here, but from a risk management
perspective, the buyers will have a better risk to reward setup around the
bottom trendline where the sellers will look for a break lower to increase the
bearish bets into the 1.3750 level. The red lines define the average daily range for today.

Upcoming
Catalysts

Today we get the Canadian retail sales data.

This article was written by Giuseppe Dellamotta at www.forexlive.com.