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USD Strengthens As US Yields Rise

The USD strengthened against its counterparts yesterday breaking its downward motion since the 20th of August, getting a boost from rising US yields as well as a weakening EUR ahead of the ECB’s interest rate decision due out tomorrow. The USD tended to weaken in the past 2 ½ weeks which was allowed to continue as speculation for the Fed delaying a possible tapering of its QE program intensified after the release of a weak NFP figure for August last week, which took markets by surprise. Also, the surging covid related deaths in the US may provide additional reasons for the Fed to consider a postponement of the tapering and US President Biden is expected to address the issue on Thursday. Today we expect traders, attention to turn to the speeches of New York Fed President Williams as well as Dallas Fed President Kaplan later on and as for financial data we note the release of the JOLTS job openings for July.

The USD Index rose yesterday breaking the 92.30 (S1) resistance line, now turned to resistance. The index in its upward movement also broke the downward trendline characterizing its movement since the 20th of August, hence we switch our bearish outlook in favor of a bullish one, given also that the RSI indicator below the index’s 4-hour chart is above the reading of 50 implying a slight advantage for the bulls. Should the dollar remain in high demand, we may see the Index breaking the 92.75 (R1) resistance line and take aim for the 93.20 (R2) resistance level. On the other hand, should a selling interest be displayed by the market, we mays see the index reversing course and breaking the 92.30 (S1) support line, aiming for the 91.75 (S2) level.

BoC interest rate decision due out

Today in the American session CAD traders are expected to focus on BoC’s interest rate decision release and the bank is widely expected to remain on hold keeping rates unchanged at 0.25%, and currently CAD OIS imply that the market has fully priced in such a scenario to materialize currently. The recent GDP release for Q2, took CAD traders by surprise as the rate instead of slowing down yet remaining in the positives as expected, showed a contraction of the Canadian economy. The release practically threatens the target of a 6% growth rate for the year and given also the uncertainty still ahead of the coronavirus Delta variant as well as the Canadian elections on the 20th of September, we may see the bank stop leaning on the hawkish side and adopt a more cautious tone. In the same sense it may be more plausible for the bank to maintain its current QE program intact and refrain from any tapering for now. Should the bank actually maintain a dovish tone we may see the CAD weakening and vice versa.

USD/CAD rose yesterday yet seems to find resistance at the 1.2650 (R1) level. Nevertheless, we tend to maintain the view that the pair may be about to abandon its sideways movement for an upward movement, given also that the RSI indicator below our 4-hour chart is near the reading of 70, confirming buyers’ extensive interest. Please note though that also a lot regarding the pairs’ direction, is still dependent from BoC’s interest rate decision later today. Should the bulls actually take charge of the pair’s direction, we may see USD/CAD breaking the 1.2625 (R1) resistance line and aim for the 1.2785 (R2) resistance level. Should the bears take over, we may see the pair reversing course once again aiming if not breaking the 1.2495 (S1) support line.

Other economic highlights today and the following Asian session:

Today, in the American session we note from the US the JOLTS Job openings for July and from Canada besides BoC’s interest rate decision also the release of the Ivey PMI for August, which more likely is to be overshadowed by BoC. Just before the Asian session starts, we get from the US the API weekly crude oil inventories figure and later on, China’s inflationary measures for August.

USD Index H4 Chart

Support: 92.30 (S1), 91.75 (S2), 91.30 (S3)

Resistance: 92.75 (R1), 93.20 (R2), 93.70 (R3)

USD/CAD H4 Chart

Support: 1.2495 (S1), 1.2375 (S2), 1.2270 (S3)

Resistance: 1.2650 (R1), 1.2785 (R2), 1.2920 (R3)

 

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