- The US NFP report showed stronger than expected job growth.
- Powell dashed hopes for a huge rate cut.
- The dollar gained in safe-haven demand as tensions in the Middle East escalated.
The weekly USD/CAD forecast favors more upside as the likelihood of an aggressive Fed easing cycle recedes following strong NFP data.
USD/CAD Ups and Downs
The USD/CAD pair had a bullish week as the dollar strengthened due to several factors. Notably, US economic data reveals a resilient economy, with the labor market showing unexpected strength. The NFP report showed stronger than expected job growth. Meanwhile, the unemployment rate has fallen, indicating tough conditions in the labor market.
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At the same time, Powell dashed hopes of a massive rate cut, saying the Fed would cut rates by 25 basis points. Further support for the dollar came from safe-haven demand as tensions in the Middle East escalated.
Next week’s key events for USD/CAD
Market participants will be watching US inflation data and minutes from the FOMC policy meeting next week. Meanwhile, Canada will release employment data.
The US consumer inflation report will cause significant volatility as it shapes the outlook for a Fed rate cut. Economists expect the monthly figure to increase by 0.1% after a 0.2% increase in the previous month. Meanwhile, the annual figure could decrease from 2.5% to 2.3%. The softer-than-expected numbers will increase bets for a massive Fed rate cut in November. On the other hand, if inflation spikes, the Fed is likely to stick to a gradual pace of rate cuts. Meanwhile, Canadian employment data will influence the Bank of Canada’s next move.
USD/CAD Weekly Technical Forecast: Bulls take control but face resistance
From the technical side, USD/CAD the price broke above the 22-SMA, indicating a change in sentiment. The bulls took control after the price found support at the 1.3425 level. Furthermore, the RSI has shown a bullish divergence, indicating weakness in the previous downtrend.
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Although the bulls have taken control, they face a solid barrier at the 1.3600 resistance level. Therefore, if the price fails to break this resistance, it could start to consolidate between the support at 1.3425 and the resistance at 1.3600 or continue the previous downtrend.
On the other hand, a break above the resistance at 1.3600 would make a higher high, confirming a new bullish trend. However, the price should stay above the SMA and make more higher highs and lows. Consequently, it could bounce back and break above the 1.3725 resistance level.
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