- US consumer spending rose moderately in October.
- The US PCE price index in October showed a slower growth of 3% compared to a year ago.
- The Canadian economy shrank at an annual rate of 1.1% in the third quarter.
On Friday, the USD/CAD outlook is bearish, riding the waves of continued dollar weakness. The bearish move came after Thursday’s data revealed a weakening trend in US inflation for October. US consumer spending rose moderately in October. Meanwhile, annual inflation growth was the lowest in 2 1/2 years.
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In particular, the eagerly awaited personal consumption expenditure (PCE) price index in October showed a 3% increase compared to a year ago. That was a slowdown from the three-month streak of a 3.4% reading. However, it is still above the Fed’s 2% target.
Federal Reserve policymakers signaled Thursday that a rate hike by the U.S. central bank is likely a done deal. However, they kept the option open for further tightening of monetary policy if progress on inflation falters.
Market indicators show a 97% probability that the Fed will keep rates on hold at its December meeting. Furthermore, there is a 46% chance of a rate cut next March, compared to a 27% chance the previous week.
Surprisingly, Canada’s economy shrank at an annual rate of 1.1% in the third quarter, avoiding a recession. However, the data revealed a weakening of growth ahead of the upcoming interest rate decision. The economy has avoided a technical recession, defined as two consecutive quarter-on-quarter contractions.
USD/CAD Key Events Today
- Changing employment in Canada
- Unemployment rate in Canada
- US ISM manufacturing PMI
- Fed Chairman Powell’s speech
USD/CAD Technical Outlook: RSI reflects weaker bearish momentum
Price action and indicators on the 4-hour chart indicate a bearish bias for USD/CAD. It is noticeable that the price made lower highs and lows, indicating a downtrend. Initially, the bears paused at the 1.3550 support level, where the price was oversold. This led to a pullback to the 30-SMA, where the bulls triggered a downtrend. However, bearish momentum was still strong as price made a candle that swallowed the bearish SMA.
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As a result, the price fell and broke below the support at 1.3550. However, a closer look at the RSI shows weaker bearish momentum. Although the bears made a new low, the RSI made a higher low, indicating a divergence. However, the bears will only lose control if the price breaks above the SMA.
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