The dollar is declining against major currencies on Monday. The USDCAD currency pair is approaching the monthly low set on September 1. The dollar is falling due to investors' expectations of a possible pause in interest rate hikes by the Federal Reserve (Fed) this week. The main focus is on the U.S. central bank's monetary policy outlook.
According to Tim Waterer, chief market analyst at KCM Trade, the dollar started the week with a decline due to falling demand for currency assets. This week's economic calendar suggests many possible event risks associated with the Fed. Rapid economic growth, slowing inflation and a stable labor market have set the stage for the Fed officials to update their forecasts. That could influence the outlook for monetary policy easing, Waterer added.
According to CME Group's FedWatch Tool, futures tied to the Fed's overnight benchmark interest rate consider a 98% probability that the American central bank will leave rates unchanged at the end of its meeting on September 19-20. However, analysts' expectations of the rate remaining unchanged in the 5.25%-5.50% range at the October 31-November 1 meeting is around 72%.
Ahead of the Fed's rate decision, volatility in the USDCAD pair will be intensified by the release of Canada's inflation data on Tuesday. The Consumer Price Index is forecast to rise to 3.8% year-on-year from the previous level of 3.3%. Confirmation of this forecast could weaken the Canadian dollar's position in the short term.
The USDCAD pair is forming a downtrend on the H4 time frame.
In terms of wave analysis, the price is now forming the second upward wave on the H1 timeframe. The new wave system emerged after the price went beyond the uptrend of the older timeframe. The strong news background of the middle of the week may create conditions for the current trend to change into the third descending wave. Overcoming the key support at 1.3490 will strengthen the movement towards selling.
Short-term prospects for USDCAD suggest selling.
The target is at the level of 1,3375.
Part of the profit should be taken near the level of 1,3455.
A stop-loss could be placed at the level of 1,3590.
The bearish trend is short-term, so trade volume should not exceed 2% of your balance.