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Chart of the Day: USDCAD

A simple setup on the daily chart that’s come onto my high-watch list. The USD is over-loved, and there’s little doubt about that. But pullbacks are likely contained, as the stars are aligned now for further upside. With traders talking about USD scarcity amid a Federal Reserve that’s really quite loath to cut and only doing so for “insurance” purposes.

USDCAD, daily

Meanwhile, we assess the Bank of Canada meeting on Wednesday (00:00 AEST), and we see a market that places very little prospect of a cut. So, the move in the CAD comes when traders marry the bank's outlook to the 50bp of cuts priced in over the coming year. If the statement reads that the two cuts priced aren’t sufficient, then we’ll see the CAD selloff, and vice versa. More near-term, though, and in upcoming US trade we get the US ISM manufacturing print (due 00:00 AEST), which can often be a market-driver and that one suspects the USD could be sensitive to. The consensus is we see an unchanged read of 51.2, so one suspects that, from a simplistic standpoint, if we get a read over 51.5 the USD will rally, while below 50 and we’ll see sellers.

My preference is to wait for the price to close firmly above the ceiling of 1.3345, as this will confirm the bulls are firmly in control again. And the higher probability is we trend higher again after this period of consolidation. Holding positions over any central-bank meeting is a huge risk, so I’d keep exposures small and look to build after the BoC meeting.

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