The USD/CAD will be in focus for the week and looks set to experience good volatility on the back of several fundamental triggers for price action this week. The fundamental catalysts for the USD/CAD will be the changes in crude oil prices, the Canadian inflation data and ongoing reactions to the Fed’s interest rate hike.
Crude oil prices fell heavily on Friday, dipping 5% as fears grew over a recession associated with the Fed’s sharp rate hikes. Oil prices are in a 6-day losing streak, as Brent crude and WTI crude are down marginally.
Canada will report inflation data on Wednesday, with the CPI expected to hit 7.5% annually. Monthly inflation on the consumer end of the equation is expected to rise from 0.6% to 1.0%. A higher-than-expected figure would set off bets on a more aggressive rate-hiking cycle by the Bank of Canada.
The Fed Chair Jerome Powell, will make two key presentations this week. First, he will testify in front of the Senate Banking Committee, presenting the Semi-Annual Monetary Policy Report. He will also present the same report before the House Financial Services Committee. The second part of the testimony is the unscripted question and answer session, where his comments could trigger volatility in USD pairs such as the USD/CAD.
Price action on the daily chart indicates a large ascending channel, with price action being rejected at the 1.30774 resistance to initiate a pullback toward 1.29884 this Monday. A breakdown of this support extends the correction, targeting 1.29241 (11 May 2022). Additional targets to the south reside at 1.28679 and 1.27978, where the 3 November 2021 and 1 March 2022 highs are found.
On the flip side, 1.30774 needs to give way for the resistance at 1.31346 (18 November 2020) to come into the picture. Above this level, 1.32655 becomes an additional target to the north if the bulls succeed in uncapping 1.31346.