The USDCAD currency pair is forming a clear bearish trend. Yesterday's decline in the price was due to fundamental factors from the US and Canada.
The published data on inflation in the US raised hopes that the Federal Reserve would soon stop tightening its monetary policy.
The annual increase in the consumer price index slowed to 3% in June, the slowest rate of inflation in more than two years. Core inflation in June amounted to 0.2% against market expectations of 0.3%.
Against this background, the US dollar weakened.
Inflation is falling, but not fast enough to encourage the Fed to back off from raising interest rates later this month.
According to Steve Englander, the head of G10 FX at Standard Chartered, the recent dollar underperformance reflects a qualitative shift in market comfort with a shorting US currency. This is due to the terminal Fed policy rate looking increasingly capped.
The Bank of Canada raised its key interest rate on Wednesday by 25 basis points to 5% per annum. This is the maximum value since 2001. The regulator's decision matched market expectations.
The central bank noted that strong consumer spending and low unemployment continue to put upward pressure on inflation, especially in the services sector.
The management of the Canadian bank revised its inflation forecast. Now consumer prices will remain around 3% throughout the next year and will reach the target of 2% only in the middle of 2025.
Canada's annual inflation rate slowed to 3.4% in May from 4.4% in April.
The Canadian dollar strengthened after the interest rate announcement.
The USDCAD pair has broken out of a broad uptrend on the D1 timeframe.
In terms of wave analysis, the price is forming the third descending wave on the H4 timeframe. Breaking through the top of the first wave at 1.3116 will support the price movement to the sell signal level.
Signal:
The short-term outlook for the USDCAD is to sell.
The target is at the level of 1.2810.
Part of the profit should be fixed near the level of 1.3000.
A Stop-loss should be placed at the level of 1.3405.
The bearish trend is of a short-term nature, so it is suggested to limit the trading volume to no more than 2% of your capital.
This content is for informational purposes only and is not intended to be investing advice.
