Canada’s CPI Eyed as USD/CAD Challenges Key Resistance

USD/CAD FORECAST: MILDLY BULLISH

• USD/CAD advances and challenges a key technical resistance as volatility begins to choose up
• Canada’s inflation knowledge may very well be an vital catalyst for value motion subsequent week
• Market sentiment must also be a significant driver of the Canadian greenback within the close to time period

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For a lot of the final month and a half, USD/CAD (U.S. greenback – Canadian greenback) has been rangebound, shifting largely directionless between assist at ~1.3280 and resistance at ~1.3530. In latest days, the pair has accelerated to the upside following a volatility surge, testing the topside of the consolidation vary, however failing to interrupt out of it decisively.

In the approaching periods, there will likely be a number of macro occasions that would set off wild swings and probably information near-term value motion, so you will need to keep watch over the financial calendar to know what’s driving the markets. That mentioned, the 2 key releases that USD/CAD merchants ought to watch intently are Canada’s inflation report on Tuesday and the FOMC minutes on Wednesday.

Bank of Canada raised borrowing prices by 25 foundation factors to 4.50% at its January assembly and signaled that its aggressive tightening marketing campaign has ended, however policymakers might reassess the outlook if inflationary forces stay stubbornly excessive. For that purpose, merchants ought to fastidiously scrutinize incoming knowledge.

According to consensus estimates, Canadian January CPI rose 0.7% month-over-month, bringing the annual fee to six.1% from 6.3% beforehand, a small however welcome directional enchancment. An inline or below-forecast readout needs to be bearish for the Loonie, however an upside shock would add some assist insofar because the outcome may lead traders to low cost additional BoC hikes.

Why will a hotter-than-expected CPI print be solely barely constructive for the Canadian greenback? Because the market is now focusing extra on the U.S. aspect of the equation, amid elevated bets that the U.S. central financial institution’s terminal fee will settle greater than initially anticipated in response to sticky inflation. Sentiment is now being dictated by Fed’s roadmap concerns.

The launch of the FOMC minutes of the January/February assembly will present merchants with a chance to evaluate policymakers’ considering relating to future actions, however the doc is unlikely to alter the prevailing narrative following hawkish Fedspeak this previous week. Against this backdrop, the U.S. greenback is well-placed to increase its restoration within the coming periods, particularly if safe-haven demand emerges in earnest.

Returning to the USD/CAD to deal with technical evaluation, the pair might encounter sturdy resistance at 1.3530, but when this ceiling is breached decisively, bulls might launch an assault on the 1.3700 psychological stage. In distinction, if sellers regain the higher hand and spark a pullback, we are able to’t rule out a transfer towards the 2023 lows.

USD/CAD TECHNICAL CHART

USD/CAD Chart Prepared Using Buying and sellingView