The USD continues to remain
supported since the last FOMC decision as the market perceived it as more
hawkish than expected. After the rally during the low volume Christmas
holidays, we are now seeing a pullback pretty much across the board.

The market’s pricing didn’t
change much with roughly two rate cuts priced in for this year, which is in
line with the Fed’s projections. The central bank has switched its focus back
to inflation, so the next US CPI report should have a bigger influence on
interest rates expectations than the US NFP this Friday (barring big
deviations).

On the CAD side, the BoC cut
interest rates by 50 bps at the last policy meeting but dropped the
line saying “if the
economy evolves broadly in line with our latest forecast, we expect to reduce
the policy rate further“, which suggests that we reached the peak in
„dovishness“ and the central bank will now switch to 25 bps cuts and
will slow the pace of easing.

Yesterday, Canada’s Prime Minister Trudeau announced that he will step down as Liberal leader as soon as his party finds a replacement. The market expects a 25 bps
cut at the upcoming meeting and a total of 67 bps of easing by year end.

USDCAD
Technical Analysis – Daily Timeframe

On the daily chart, we can
see that USDCAD couldn’t manage to print a new high after the FOMC spike and
it’s now trading below the pre-FOMC level. From a risk management perspective,
the buyers will have a better risk to reward setup around the trendline to position for new highs. The
sellers, on the other hand, will want to see the price breaking lower to regain
control and start targeting new lows.

USDCAD Technical
Analysis – 4 hour Timeframe

On the 4 hour chart, we can
see that the pair has been ranging between the 1.4340 support and the 1.4460 resistance since the FOMC
decision, but broke out of the range this week. The sellers piled in for a drop
into the trendline where we can expect the buyers to step in.

USDCAD Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, there’s
not much else we can add here as the buyers will look for a bounce on the
trendline, while the sellers will target a break lower. The red lines define
the average daily range for today.

Upcoming
Catalysts

Today, we get the US ISM Services PMI and the US Job Openings data. Tomorrow,
we have the US ADP and the FOMC Meeting Minutes. On Thursday, we get the latest
US Jobless Claims figures. On Friday, we conclude the week with the US NFP and
the Canadian Employment report.

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