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USD/CAD bears need to get below daily support 1.3387

  • Dovish Federal Reserve and an on-hold Bank of Canada are the themes.
  • USD/CAD has printed a W-formation on the daily chart which is a reversion pattern.
  • USD/CAD bulls eye 1.3470s and 1.3520 thereafter while the USD/CAD bears look for prospects of a move to the 1.3260s.

USD/CAD is under pressure as the US Dollar is shunned by the markets in favour of the more dovish rhetoric coming from the Federal Reserve's chairman, Jerome Powell. The Fed chair Powell said for the second time in less than a week that disinflation has started to be seen in the United States of America's economy. At the time of writing, USD/CAD is waning below 1.3400 after the bears took out structure at 1.3397 on Tuesday which has resulted in the first bearish daily close since the start of the month.

Federal Reserve Jerome Powell's key comments

The jobs report was certainly stronger than anyone expected.

The strong jobs report shows you why we think this will be a process that takes a significant period of time.

Expect 2023 to be a year of significant declines in inflation. 

We probably need to do further interest-rate increases.

If data were to continue to come in stronger than expect, would certainly raise rates more.

2% inflation is a global standard and not something the Fed is looking to change.

Fiscal authorities are concerned about the debt limit.

The debt limit debate can only end with congress raising it, which has to happen.

Congress needs to raise debt ceiling in timely fashion

If debt ceiling isnt raised no one should think fed can shield economy from effects.

I am not actively contemplating the sale of securities.

It will be a couple of years before the fed's balance-sheet decline comes to an end.

The US is ‘just at the beginning’ of the disinflation process.

Worries most about when disinflation will take hold in larger services sector, also concerned about outside events.

‘Base case is that it will take time, more rate increases, to finish the process’ .

This cycle is different from past cycles, hard to predict.

Significant progress on inflation expected this year.

We are going to react to data.

We may need to do more if we continue to get strong labour market or higher inflation reports.

Bank of Canada definitive rates on hold

The bears are on top and Tiff Macklem, the  Governor of the Bank of Canada, said little to support a bullish outlook for USD/CAD.

The Bank of Canada's Tiff Macklem used a speech in Quebec City on Feb. 7 to reiterate that the central bank would be taking a conditional pause on rate hikes over the months ahead although he was also definitive that policymakers aren’t planning on cuts anytime soon. This was the Bank of Canada's governor's first speech of 2023. 

Meanwhile, one of Canada's major exports, oil, gained in value as Saudi Aramco’s move to raise prices boosted sentiment. ''The world’s largest producers increased most prices for its flagship Arab Light grade against expectations of a cut,'' analysts at ANZ Bank explained.

''It signalled the producer is expecting stronger demand, particularly in China which is reopening after years of virus-related restrictions,'' the analysts added. 

Additionally, in its influential monthly Short-Term Energy Outlook, the  Energy Information Administration, EIA, raised its forecast for demand from China this year to 15.8-million barrels per day from 15.7-million bpd.

USD/CAD technical analysis

USD/CAD is breaking structure which leaves the emphasis on the downside while on the backside of the prior bullish trendline support that was broken on Tuesday. We have the first bearish close for USD/CAD since the bull rally at the start of the month and besides some potential price discovery, aka, corrections into the topping cluster of USD/CAD's price, a move lower is a high probability for the day ahead. 

However, from a daily perspective, the USD/CAD support at 1.3387 is important:

USD/CAD zoomed in ...

As we can see, USD/CAD has printed a W-formation on the daily chart. While this is a reversion pattern, USD/CAD bears need to break the neckline and close below it or face bullish pressures that could lead to a move into the 1.3470s and with USD/CAD bulls eyeing 1.3520 thereafter. On a break below the neckline, it would be safe to say that the USD/CAd bears will be well and truly in control with prospects of a move to the 1.3260s.

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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