USD/CAD – A quiet start to the week but plenty to come

• Canadia inflation expected to have fallen again in January
• Will the FOMC minutes shed any light on rate cuts?
• USDCAD higher but momentum remains weak

It’s no surprise that it’s been a quiet start to the week, with both countries observing a bank holiday but several events on the horizon should ensure things pick up.

Canadian inflation data on Tuesday is the first of those, with the headline rate expected to have eased slightly in January. While not nearly enough to make the next Bank of Canada meeting on 6 March a real possibility for a rate cut – markets view it as around a 17% chance – a beat to the downside could improve the odds in the second quarter of the year.

The release of the FOMC minutes on Wednesday could generate more interest than usual at a time when traders appear unusually unsure of the timing and pace of rate cuts. This comes after a start to the year in which the data has not been as favorable as the final weeks of last forcing markets to scale back expectations for rate cuts this year. Could the FOMC minutes offer some clarity on that?

Weak momentum in the recent moves again?

The US dollar is edging higher against its Canadian counterpart early in the week but may continue to face strong headwinds around last week’s peak.

USDCAD Daily

Source – OANDA

New highs over the last month have been matched with weakening momentum which has created a divergence between the price and the stochastic and MACD. It occurred initially around the 50% Fibonacci retracement level and then between it and the 61.8%, both potentially important areas of resistance. While momentum could pick up in any renewed push higher, the mild gains of the last three sessions aren’t particularly encouraging.

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