FUNDAMENTAL
OVERVIEW
USD:
The US dollar sold off
across the board on Wednesday after Trump announced on Truth Social a two-sided
ceasefire agreement for two weeks while the US and Iran negotiate a lasting
peace deal. Since then, the price action became more rangebound due to Israeli
attacks against Lebanon which the Iranians have been saying was part of the
ceasefire agreement.
The good news is that Iran
held off from retaliating ahead of the peace talks in Islamabad this weekend.
But the uncertainty has been keeping the markets in check, nonetheless.
Everything hinges on these peace talks as the restart of the war would create
strong distress in the markets and potentially lead to a global recession.
In the short-term, a peace
deal would weigh on the greenback amid renewed rate cut bets and unwinding of
the March positioning. On the other hand, a breakdown of negotiations would
give the dollar another boost, potentially pushing it into new highs.
CAD:
On the CAD side, the
economic data has been surprising to the downside for a while. In such a case we
would have seen traders pricing in rate cuts for the BoC but given the US-Iran conflict
and the elevated energy prices, the market has been looking for rate hikes,
which would just increase the damage to the economy.
The BoC is current in a
neutral stance and it’s being cautious about the monetary policy response to
this negative supply shock. Despite the market pricing in now 36 bps of
tightening by year-end, the BoC is more likely to just keep rate steady for
longer unless the war ends and we get a demand boost.
USDCAD TECHNICAL
ANALYSIS – DAILY TIMEFRAME
USDCAD – daily
On the daily chart, we can
see that USDCAD broke below the upward
trendline that was defining the bullish momentum. This might give the sellers
more conviction to keep pushing into new lows. There’s not much else we can glean
from this timeframe, so we need to zoom in to see some more details.
USDCAD TECHNICAL
ANALYSIS – 4 HOUR TIMEFRAME
USDCAD – 4 hour
On the 4 hour chart, we have
a resistance zone around the 1.3870 level where there’s also the confluence of
the major broken upward trendline and the minor downward trendline. If the
price gets there, we can expect the sellers to step in with a defined risk
above the downward trendline to position for a drop into the 1.3750 support.
The buyers, on the other hand, will look for a break higher to pile in for a
rally into the 1.40 handle next.
USDCAD TECHNICAL
ANALYSIS – 1 HOUR TIMEFRAME
USDCAD – 1 hour
On the 1 hour chart, we
have a minor upward trendline defining the current pullback into the resistance.
The buyers will likely continue to lean on the trendline to keep pushing into
new highs, while the sellers will look for a break to pile in for a drop into
new lows. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we conclude the week with the Canadian Employment data, the US CPI
report and the University of Michigan Consumer Sentiment survey.
