Title: USD/CAD, EUR/CAD, and AUD/CAD Technical Outlook Ahead of the FOMC and BOC Meetings
Author: Originally written by Matt Weller, FOREX.com
The foreign exchange market is facing pivotal movements ahead of two major central bank decisions: the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) meeting and the Bank of Canada’s (BOC) rate announcement. Both events are set to play a critical role in shaping the trajectory of the Canadian dollar and its major trading counterparts.
This analysis explores the technical setup of three key CAD crosses: USD/CAD, EUR/CAD, and AUD/CAD. The CAD has been in an uncertain position lately, oscillating between strong domestic economic signals and broader macroeconomic headwinds. As market participants brace for potential volatility, a closer look at recent price behavior, key levels, and trend formations is essential for identifying potential setups in the days surrounding the central bank meetings.
FEDERAL RESERVE (FOMC) OUTLOOK
– The Fed is widely expected to maintain its benchmark rate at 5.25%-5.50% during the upcoming policy meeting.
– The central bank’s key inflation gauge, the Core PCE, has remained above the Fed’s 2% target, increasing the likelihood that rates will stay higher for longer.
– Traders will meticulously examine the updated Summary of Economic Projections (also known as the dot plot) and Chairman Jerome Powell’s press conference for guidance on future rate cuts.
– Market participants are currently pricing in approximately one rate cut for 2024, down drastically from projections earlier in the year.
The Fed’s decision and tone will directly affect risk sentiment and the U.S. dollar. A hawkish tone could support the greenback, potentially pushing USD/CAD higher, while a dovish shift might weigh on the dollar and support CAD.
BANK OF CANADA (BOC) OUTLOOK
– The Bank of Canada cut its overnight rate by 25bps in early June, reducing it from 5.00% to 4.75%.
– Economists are split on whether the Bank will continue this easing cycle at the July meeting or pause temporarily to weigh incoming data.
– Canada’s labor market has shown signs of softening, and recent inflation numbers have declined toward the BOC’s 2% target, reinforcing the argument for further rate cuts.
– However, the BOC has also warned that rate decisions will be data-dependent and cautioned about potential upside inflation risks stemming from shelter costs and food prices.
With a second BOC rate cut in July still uncertain, the Canadian dollar could see sharp moves depending on the language used in the statement and Governor Tiff Macklem’s press conference.
TECHNICAL OUTLOOK BY PAIR
USD/CAD
The U.S. dollar has remained firm against the Canadian dollar in recent weeks, with USD/CAD finding support amid ongoing uncertainty in energy markets (a major factor for CAD). Despite a recent retracement from yearly highs, the broader uptrend remains intact for now.
Key Technical Levels:
– Support: 1.3600 (50-day moving average), 1.3520 (rising trendline support from April lows), 1.3400 (horizontal support region)
– Resistance: 1.3740 (June highs), 1.3850 (March swing high), 1.3900 (psychological level)
Chart Pattern:
– The daily chart shows USD/CAD forming a potential bullish flag pattern, characterized by a consolidating descending channel after an impulsive move up from May to June.
– A confirmed breakout above the upper boundary of the flag (around 1.3740) could project an extended move toward 1.3900 or higher.
Momentum Signals:
– The RSI remains above 50, suggesting bullish momentum is intact.
– The MACD line is still above the signal line, offering a further bullish signal.
Summary:
Traders should
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