Loonie Preps for Canadian & US PMI Data – Nokturnal

USD/CAD ANLAYSIS & TALKING POINTS

• BoC looks to economic data for guidance.
• Canadian and US manufacturing in focus today.
• Rising wedge gives hope to CAD bulls.

CANADIAN DOLLAR FUNDAMENTAL BACKDROP

The Canadian dollar has been steadily declining against the USD since mid-July despite the fact the crude oil prices have rallied. The crude oil price appreciation has largely offset some of the dollar gains since the Bank of Canada’s (BoC) Summary of Deliberations last week revealed the central banks hesitation to tighten monetary policy further from here on in after raising interest rates by 25bps in July. Money market pricing (refer to table below) shows no additional hikes priced in at the moment but there is scope for possible hikes should economic data deem it necessary. With global inflationary pressures falling, I expect Canadian inflation to follow a similar trend that should mean the BoC is at the peak of their hiking cycle. Rate cuts will be the next point of contention but for now markets will be looking at Canadian fundamental data to firstly rule out any additional rate hikes.

BANK OF CANADA INTEREST RATE PROBABILITIES

Source: Refinitiv

Later today, the economic calendar will be focused on both Canadian and US manufacturing PMI’s. Both countries are currently in contractionary territory and any improvement could support the respective currency accordingly.

USD/CAD ECONOMIC CALENDAR (GMT +02:00)

Source: nokturnal Economic Calendar

TECHNICAL ANALYSIS

USD/CAD DAILY CHART

Chart prepared by Warren Venketas, IG

Daily USD/CAD price action has the pair conformed within a developing rising wedge chart pattern (black) now trading above the 1.3200 psychological level. The Relative Strength Index (RSI) shows market hesitancy as it lingers around the midpoint region of the oscillator. This could suggest that traders are waiting further fundamental data that include upcoming US ISM services PMI, Canadian jobs and the Non-Farm Payroll (NFP) reports.

Bears will be looking for daily candle close below wedge support that could prompt a larger move lower towards subsequent support zones. From a bullish perspective, a close above wedge resistance/1.3262 could invalidate the pattern and expose the 1.3300 level.

Key resistance levels:

• 1.3300
• 50-day moving average (yellow)
• 1.3262/Wedge resistance

Key support levels:

• 1.3200
• Wedge support
• 1.3093
• 1.3000

IG CLIENT SENTIMENT DATA: MIXED

IGCS shows retail traders are currently LONG on USD/CAD , with 62% of traders currently holding long positions (as of this writing). At nokturnal we typically take a contrarian view to crowd sentiment but recent changes in long and short positioning results in a short-term cautious disposition.

Contact and followWarrenon Twitter:@WVenketas