US Inflation Falls Short; USD/CAD Trend Faces Constraints

In Canada, the Bank of Canada (BoC) raised its key overnight rate by a quarter-point to 5%, signaling a willingness to take further tightening measures due to the risk of inflation exceeding its 2% target. This move, the second increase in two months, was widely anticipated by analysts and markets.

The BoC had previously stated that monetary policy was not restrictive enough. Despite nine previous rate increases since March of the previous year, the Canadian economy regained momentum in May, likely growing by 0.4% after a stall in April.

The BoC revised its growth forecast for the second and third quarters, expecting 1.5% expansion in both periods. The overall 2023 real gross domestic product growth projection was revised upward to 1.8% from the previous forecast of 1.4%. The central bank attributes the driving factors behind this growth to a tighter labor market, pent-up demand for services, an optimistic housing price outlook, and fiscal measures at the provincial and federal levels.

The BoC also predicts that inflation will only reach its 2% target in mid-2025, which is six months later than the previous forecast. Although headline inflation slowed to 3.4% in May, the core measures of inflation have not decreased as expected. The persistently high demand, elevated housing costs, and gradual decline in goods prices excluding food and energy are contributing to the inflationary pressure.

In the United States, the pace of economic growth has increased slightly, with wage increases approaching pre-pandemic levels, according to the Federal Reserve's Beige Book. While headline and core inflation rates rose at a slower pace than anticipated in June. The consumer price index increased by 3.0% annually, down from 4.0% in May, representing the lowest level in over two years.

The subdued U.S. inflation numbers led to a decline in the dollar, as traders interpreted them as a signal that U.S. interest rate increases would soon come to an end. The dollar experienced significant losses against other currencies.

However, despite the deceleration in headline inflation, the core figures suggest a stickier inflation trend, raising speculation that the Federal Reserve will resume rate hikes this month. Consequently, the forecast suggests that the USD/CAD trend will experience fluctuations, with both upward and downward movements expected. However, it is anticipated that the upward trajectory of the US dollar may be somewhat constrained during this period.

Data for Technical Analysis (1H) CFD USD/CAD

Resistance : 1.3179, 1.3185, 1.3196

Support : 1.3157, 1.3151, 1.3140  

1H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 1.3137 - 1.3157 is touched, but the support at 1.3157 cannot be broken, the TP may be set around 1.3179 and the SL around 1.3117, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3179 - 1.3209, TP may be set around 1.3220 and SL around 1.3137, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3179 - 1.3209 is touched, but the resistance 1.3179 cannot be broken, the TP may be set around 1.3150 and the SL around 1.3229, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3137 - 1.3157, TP may be set around 1.3122 and SL around 1.3200, or up to the risk appetite.       

Pivot Points Jul 13, 2023 07:51AM GMT

Sources: Investing 1, Investing 2