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Fed cuts as expected…Choppy but limited reaction so far… Powell’s presser next.
Trading Tip: Be wary of fading a central bank monetary policy decision
A veteran trader once told me to avoid the temptation to fade a reaction to a central bnank monetary policy decision.
While much depends on the type of reaction (e.g. buy the rumor sell the fact vs. a more fundamental reaction), it is one to keep in mind. This is especially true for the FOMC as the announcement (and press conference) take place in the USD afternoon when liquidity is thin.
Trading Tip: Be wary of fading the reaction to a central bank decision. There are exceptions but as a rule it it has been a good one to follow more times than not.
USDCAD Technical Analysis: Focus on the BoC and FOMC decisions
Fundamental Overview
The USD came under some pressure since Friday following the softer than expected US CPI report and then the US-China preliminary deal over the weekend. Overall, the market pricing didn’t change much as it was already very dovish going into the CPI and the trade talks, but given the positive risk sentiment, the greenback continued to stay on the back foot.
The risk-on sentiment is expected to weigh on the dollar in the short-term, although Treasury yields could also erase the drop triggered by Trump’s escalation a couple of weeks ago. This could create some tension between bullish and bearish drivers, but for now there’s no strong reason for the dollar to rally amid the lack of key US data.
The Fed is expected to cut interest rates by 25 bps and bring their policy rate to 3.75-4.00%. Fed’s Miran will likely dissent again for a 50 bps cut. The Fed is also expected to announce an end to QT.
On the CAD side, the BoC is expected to cut interest rates by 25 bps and bring their policy rate to 2.25% which is the lower bound of their estimated neutral range (2-25%-3.25%). The market still sees good chances for the BoC to end the cycle at 2.00% sometime in 2026.
The expectations for a cut got solidified mainly by some dovish BoC Governor Macklem’s comments and by the renewed tensions between US and Canada on the tariffs front. We all know that eventually the US and Canada will get along, but for now this risk is keeping the BoC on the dovish side.
In terms of economic data, the most recent employment and inflation reports both surprised to the upside, so there’s a good chance the BoC can signal an extended pause, which will likely be taken as slightly hawkish but not a game changer.
USDCAD Technical Analysis – Daily Timeframe
USDCAD daily
On the daily chart, we can see that USDCAD fell below the key 1.4018 level and extended the drop as more sellers piled in. The target should be the upward trendline where we can expect the buyers to step in with a defined risk below the trendline and position for a rally into new highs. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets into the 1.3721 level next.
NAS100 (NASDAQ) UPDATE
- Similar to US500, a typical buy the rumor sell the fact reaction following an expected Fed rate cut may be limited or not occur with the focus looking ahead to mega cap earnings reports later on.
- Look for 26000 to act as a pivot, only sub 25815 would shift the focus.
- Only resistance is the new record high.
NAS100 1 HOUR CHART
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