General analysis USDCAD for 08.06.2022
Current Dynamics
The USD/CAD pair is trading lower at the beginning of todays trading. After the pair failed to maintain its gains in the second half of Tuesday.
Besides the lack of data and major events, one of the reasons for the weak performance of the US dollar may be the decline in the US 10-year Treasury yields to below 3.0%. Besides the comments of US Treasury Secretary during her statement on the budget for the fiscal year 2023 in front of the Senate Finance Committee, Janet Yellen said: “The United States is facing unacceptable levels of inflation, and an appropriate budget position is needed to help curb inflationary pressures without hurting the economy”.
Despite this, the US trade deficit reached the largest decline in 10 years during the month of April, as it established a deficit of $87.1 billion, contrary to expectations of $89.6 billion, and the value of imports of goods and services decreased by 3.4% in April to $339.7 billion, which is the first decline since July. Exports increased by 3.5% to a historical high of $252.6 billion.
But there is still tension in financial markets, as investors fear the Federal Reserves efforts to hold down inflation could lead to a recession, and there are some early signs that its campaign to cool the economy is having an effect. Where the World Bank lowered its forecast for global growth this year to record about 2.9% only, compared to its previous forecast in January, which was about 4.1%.
For his part, World Bank President David Malpass said that the risks of stagflation, the Russian-Ukrainian war, and China’s lockdowns will undermine global economic growth. He explained it will be difficult to avoid economic stagnation in many countries.
Inflation data for May will be the benchmark for whether inflation has peaked or not. The US Federal Reserve is still highly committed to raising rates by 50 basis points in the next two meetings at least. But if the inflation data comes with a decline, even a slight one, the chances of a 50 basis point hike in the next September may decrease.
As Federal Reserve Vice Chairman Lyle Brainard said: “If we dont see some kind of slowdown in the monthly inflation prints, and if we don’t notice that some of that intense demand is starting to calm down a little bit, it may be appropriate that we have another meeting where we go forward and, if we see a slowdown in monthly prints, it may make sense to move forward at a slightly slower pace”.
In view of the most important expected events that could affect the pairs performance, the consumer price index, which is the Fed’s favorite indicator to measure inflation scheduled on Friday, and the US Federal Reserve’s decision on interest rates next week, where we may see big fluctuations if the results are unexpected.
Support and resistance levels.
On the 4 hour chart, the instrument is trading at the moving downside of the Bollinger Bands. As the price range expands, indicating that the instrument is in a downtrend. The momentum chart is below the 100 level, which is giving buy signals. Envelopes indicator gives signals to sell.
- Support levels: 1,25085, 1,24775, 1,24450
- Resistance levels: 1,26325, 1,25850, 1,25450
Trading scenarios
- Short positions should be opened at the 1,25450 with a target of 1,25085 and a stop loss at 1,25695. Implementation period: 1-2 days.
- Long positions can be opened at the level of 1,25850 with a target of 1,26325 and a stop-loss at the level of 1,25450. Implementation period: 1-2 days.