USD/CAD analysis: Canadian CPI, FOMC minutes puts Loonie in sharp focus

USD/CAD analysis: Outlook will be impacted by upcoming data releases
Peak interest rates narrative keeping US dollar under pressure
USD/CAD technical analysis

The weakness in US dollar continues amid expectations that the Federal Reserve is done with interest rate hikes. This is helping to underpin major foreign currencies like the JPY, GBP and CAD. The USD/CAD is an interesting pair to watch as it tests a major support area ahead of the release of Canadian inflation data and FOMC minutes later.

USD/CAD analysis: Why is the dollar weakening?

The continued weakness in the US dollar is attributed to the anticipation that the Federal Reserve has concluded its interest rate hikes. Today's emphasis is on gaining further insights into policymakers' discussions during the Federal Reserve's November meeting through the minutes of that meeting, due for release later on in the day. Traders have factored in expectations of the Fed maintaining unchanged interest rates in December, with some even anticipating rate cuts as early as March, as indicated by the CME's Fed Watch tool. These expectations arose following the release of some weaker-than-expected data last week, including a cooling inflation rate of 3.2% YoY in October and indications of a weakening job market. Despite this, the Federal Reserve remains committed to the notion that interest rates must stay elevated for a prolonged period to curb inflation. Let’s see if that narrative changes if we see further weakness in US data moving forward.

USD/CAD outlook will be impacted by upcoming data releases

The USD/CAD faces interesting few days as we have several data releases that could impact the direction of this currency pair, starting with the release of Canadian CPI shortly.

Here’s this week’s economic calendar relevant to USD/CAD pair:

USD/CAD analysis: Technical levels to watch

Source: TradingView.com

At the time of writing, the USD/CAD was testing the top of the key 1.3650-1.3700 key support range. Previously, this area had acted as resistance, before turning into support in more recent times. Here, we also have a bullish trend line coming into play. But recent price action has been bearish and the USD/CAD has moved below the 21-day exponential moving average, which is not a good sign for bullish momentum.

The USD/CAD has been stuck in a short-term bearish trend ever since it failed to hold the breakout above the high of 1.3862 hit in March, earlier this month. Since then, several support levels have broken and turned into resistance, including 1.3840ish and 1.3775ish. These levels must now be reclaimed by the bulls if we are to see the start of a new uptrend.

All told, the USD/CAD’s directional bias is range bound, with a bearish tilt amid the dollar weakness across the board. But now it must either break below the aforementioned support range between 1.3650 to 1.3700 to trigger further follow-up selling, or start to form a base around current levels to keep the bulls happy. A lot will depend on incoming data, of course.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.