The USD/CAD exchange rate drifted downwards this week as investors reacted to the Federal Reserve decision. The pair dropped to a low of 1.3500, the lowest point since April 21st as the US dollar index (DXY) dropped.
US and Canada jobs ahead
There was two important USD news this week. First, concerns about the banking sector continued after the collapse of First Republic Bank. The company was quickly acquired by JP Morgan. And as I wrote on Thursday, there is a possibility that more banks will collapse soon. The most at risk are Western Alliance, PacWest, Zions Bank, and Comerica. Some of these banks will fail as soon as this weekend.
The other important news was the interest rate decision by the Federal Reserve. In it, the bank ignored the challenges in the banking sector and the slowing economy and decided to hike rates by 0.25%. It also committed to continuing with its quantitative tightening (QT) process.
Most analysts believe that the Fed has now delivered its final rate hike of this cycle. It will now take a strategic pause as it assesses the progress in inflation.
The other key USD/CAD news will be the upcoming US and Canada jobs numbers scheduled for Friday. While these numbers are important, I believe that their impact on the pair will be minimal since we know what to expect from the Fed and the Bank of Canada going forward.
Like the Fed, there is a likelihood that the BoC will continue pausing its interest rates in the coming months. The latest data showed that Canada is winning the inflation fight even after the BoC decided to pause its hikes.
Economists expect that the US economy added over 180k jobs in April after adding 236k in the previous month. They also expect that the unemployment rate drifted upwards to 3.6%. In Canada, analysts expect that the country’s jobless rate rose to 3.6%.
USD/CAD technical analysis
The USD/CAD exchange rate has moved downwards in the past few days. As it dropped, it moved below the key support level at 1.3531, the neckline of a double-top pattern that formed recently. In price action analysis, this pattern is usually a bearish sign. The pair has also moved below the 50% retracement point and the 50-day moving average.
Therefore, the path of the least resistance for the pair is lower, with the next point to watch being at 1.3400. The stop-loss of this trade is at 1.3600.
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