USD/CAD Eyes a Return to 1.3350 on Fed and Risk Sentiment

It was a quiet start to the US session for the USD/CAD, with no economic indicators from Canada or the US to consider.

The lack of stats left the Loonie in the hands of crude oil prices and market risk sentiment. With the Fed set to deliver another 75-basis point rate hike on Wednesday, bets of a more hawkish Fed should provide dollar support.

Crude oil prices were on the decline through the European session. Concerns over demand weighed. WTI was down 2.01% to $83.40.

USD/CAD Price Action

At the time of writing, the USD/CAD was up 0.30% to 1.33042. A bullish morning saw the dollar rise from an early low of 1.32498 to a high of 1.33240.

The USD/CAD tested the First Major Resistance Level (R1) at $1.3307.

Technical Indicators

The USD/CAD will need to avoid the 1.3266 pivot to retarget the First Major Resistance Level (R1) at 1.3307 and the morning high of 1.33240. A lack of economic indicators should support bullish sentiment towards the dollar following the CPI report.

In case of a risk-off-fueled extended rally, the USD/CAD should test the Second Major Resistance Level (R2) at 1.3348 and resistance at 1.3350. The Third Major Resistance Level (R3) sits at $1.3430.

A fall through the pivot would bring the First Major Support Level (S1) at $1.3224 into play. Barring a risk-on-fueled rally, the USD/CAD should avoid sub-1.32 and the Second Major Support Level (S2) at 1.3184. The Third Major Support Level (S3) sits at 1.3102.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bullish signal. This morning, the USD/CAD pair sat above the 50-day EMA, currently at 1.31651.

The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening on the 200-day EMA, delivering bullish signals for the USD/CAD pair. A hold above the 50-day EMA would support another run at R1 (1.3307) and 1.3350.

However, a fallback through S1 (1.3224) would bring S2 (1.3184) and the 50-day EMA (1.31651) into view.

The US Session

It is a quiet US economic calendar. There are no economic indicators to consider, leaving the markets to focus on the Fed’s Wednesday policy move and projections.

Last week’s CPI report suggests a hawkish rate hike, supporting a DXY return to 110.

There are no FOMC member speeches to consider, with the FOMC in its September blackout period (September 10-22). The lack of chatter will leave the markets in data-dependent mode.

This morning, the split between a 75-basis point and a percentage point rate hike was 80% to 20%, favoring a 75-basis point hike. However, we have seen a rise in the probability of a percentage point hike on November 2. This morning, the probability of a percentage point hike stood at 13.3% versus 0% before the August CPI report.