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• USDJPY broke key resistance level 154.70
• Likely to rise to resistance level 157.20

USDJPY currency pair recently broke the key resistance level 154.70 (former stern support from June, which has been reversing the price from the end of July).

The breakout of the resistance level 154.70 should accelerate the active medium-term impulse wave (5) from the start of November.

Given the clear daily uptrend and the bullish US dollar sentiment, USDJPY currency pair can be expected to rise to the next resistance level 157.20.

• WTI crude oil reversed from the multi-year support level 66.70
• Likely to rise to resistance level 70.00

WTI crude oil recently reversed up from the powerful multi-year support level 66.70 (which has been repeatedly reversing WTI from the end of 2021, as seen from the weekly WTI chart below).

The support level 66.70 was strengthened by the nearby lower daily and the weekly Bollinger Bands.

Given the strength of the nearby support level 66.70 and the bullish divergence on the weekly Stochastic indicator, WTI crude oil can be expected to rise to the next resistance level 70.00.

Dallas Fed President Lorie Logan emphasized today that while additional rate cuts will likely be necessary, "it’s difficult to be sure how many cuts may be needed and how soon they may need to happen.”

Logan also reiterated that the “neutral” rate—the level at which the interest rate neither stimulates nor restricts the economy—may be higher than initially estimated.

She suggested that the current rate is close to this neutral level, though precise measurement is challenging.

Minneapolis Fed President Neel Kashkari conveyed optimism about the current direction of inflation but emphasized the importance of waiting for additional economic data before making any policy changes.

Speaking to Bloomberg TV shortly after release of October CPI, Kashkari mentioned that although he hadn't yet examined the details, the headline figures reinforced his confidence that inflation is moving favorably.

"I think that inflation is headed in the right direction. I’ve got confidence about that, but we need to wait,” he said. “We’ve got another month or six weeks of data to analyze before we make any decisions.”

• USD/CAD surges as oil prices decline and US Dollar rises.
• Market anticipates less rate cuts in 2025 due to Trump’s return, impacting interest rate differentials.
• Potential US tariffs add headwinds for the Canadian Dollar.

USD/CAD has been on a tear since the back end of September, rising some 550 pips over the past 6 weeks. The move coincided with a stronger US Dollar and weaker Oil prices.

Oil Continues to Weigh on the Canadian Dollar

The Canadian Dollars struggles since the back end of September have coincided with a weaker Oil price. Oil prices have faced significant headwinds over the past few months as expectations around demand continue to be downgraded. Just yesterday OPEC announced its fourth consecutive downgrade to its demand forecasts, with China cited as the primary reason.

Interest Rate Differentials Coming Into Play?

The US Election is out of the way and with Donald Trump scheduled to return to the White House on January 20, 2025 markets are already pricing in less rate cuts in 2025. This has left the possibility of interest rate differential coming into play.

As things stand, markets are pricing in around 77 bps of cuts by the Fed and around 91 bps from the Bank of Canada. This leaves the Canadian Dollar in a vulnerable position as Trump is yet to take office. If President Elect Trump moves forward with tariffs and inflationary risks do rear their head, the rate differential could widen adding further headwinds for the Canadian Dollar.

On Tuesday, Neel Kashkari, the President of the Minneapolis Fed, said the central bank is still confident in fighting temporary inflation, but it’s too soon to say they’ve completely won. He also mentioned that the Fed won’t predict how Trump’s policies will affect the economy until they have more details about those policies.

The calendar is quiet this week from Canada but today we just had US Inflation data which came out in line with forecasts. The impact was rather muted but it did firm up rate cut expectations for the Fed at the December meeting.

Technical Analysis

USD/CAD has been consolidating for the last two trading weeks in a 100 pip range between the 1.3850 and 1.3950 handles.

Historically USD/CAD tends to follow up periods of consolidation with significant swing moves in either direction. This means that USD/CAD could be poised for a significant breakout in the days ahead.

The 1.4000 handle remains elusive at this point and given that US Inflation barely moved the needle, the case for a retracement before a push toward the 1.4000 handle looks appealing. However, any pullback may be seen as an opportunity for would be bulls to get involved.

Immediate support rests at 1.3900 before the 1.3854 and 1.3793 come into focus.

Conversely a break above recent highs at 1.3956 could finally open up a break of the psychological 1.4000 barrier with resistance resting around the 1.42500 handle.

USD/CAD Daily Chart, November 13, 2024

Source: TradingView (click to enlarge)

Support

• 1.3900
• 1.3854
• 1.3793

Resistance

• 1.3958
• 1.4000
• 1.4250

Markets

October CPI inflation was the first really important US data series for release after the Trump/Republican election victory. Concrete policy measures from the new US administration will decide which way activity and in inflation will ultimately go. Data in the meantime will help to define the starting point for Fed policy and the subsequent market reaction function. Ahead of the publication of the US CPI data, the Trump trade already slowed. US yields stabilized and so did the dollar. US equity investors pondered how much good news was already discounted as major indices touched record levels of late. The US CPI report printed exactly in line with expectations (headline 0.2% M/M and 2.6% Y/Y from 2.4% in September; core 0.3% M/M and 3.3% Y/Y, unchanged). Markets apparently were positioned for a potential upward surprise. Given a reflationary Trump agenda, this could have pushed the Fed to a more cautious approach, especially as US activity remains strong for now. Despite the inline outcome services prices remained elevated at 0.4% M/M and 4.7% Y/Y. So were housing related costs (0.4% M/M), fuels and utilities 0.8% M/M, amongst others , also rose. A disinflationary dynamics was seen in non-durables (-0.3% M/M), education and communication (-0.3%) and apparel and footwear (-2.0%). The US yield curve bull steepened after the data release with yields declining between 8.5 bps (2-y) and 4 bps (30-y). The reaction probably tells more about the market position than on the content of the inflation report. The report is seen as leaving the door open for a 25 bps Fed rate cut in December (now 75% discounted vs about 60% before the release). Bunds ‘for once’ underperform Treasuries today, with yields ‘rising’ about 1-2 bp in the 2-10-y sector (gains were up 6.0 bps before the US CPI release). Maybe the bottoming in German/EMU yields was at least partially due to comments for the Christian Democrat leader Herz. He indicated his party is open consider some reforms in the country’s strict borrowing rules, e.g. to finance investments. Recent USD rebound, while still setting minor now ST top levels against some other majors earlier today, already showed tentative signs of losing some momentum. It lost some, admittedly still modest ground, after the CPI release (DXY 105.85 from an intraday top of 106.2, EUR/USD 1.0630 from intraday low near 1.0595). The report & ‘setback’ in yields and the dollar didn’t help European equities (Eurostoxx -0.4%). US equities opened little changed. In a broader perspective, the report created a breather for the post-election phase of the Trump-trade, but is no game-changer.

News & Views

The Riksbank released the meeting minutes of the November policy meeting. It upped the pace of rate cuts from 25 bps to 50 bps (to 2.75%). Governor Thedeen in the minutes said that the central bank “should act on the information we have at hand here and now, which speaks in favor of a continued, but somewhat faster normalization of monetary policy.” There was a specific focus on the need for domestic demand to pick up to offset (increasing worries about) lackluster and volatile external demand. The meeting took place one day after the US elections in which it became obvious pretty soon that Trump would be the next president. The Riksbank noted the opposite risks that trade barriers pose for inflation. The latter is currently rising (1.5%) at a rate slower than the central bank’s 2% target. A further weakening in the Swedish currency due to ongoing rate cuts is seen as an upside risk to inflation. But unless SEK would depreciate materially and with the board downplaying the passthrough effects, the current weak krone probably won’t derail the central bank’s ongoing easing plans. EUR/SEK is hovering around 11.6 recently. Governor Thedeen labelled money market pricing of the Riksbank’s terminal rate just above 2% as reasonable.

China’s ministry of Finance today announced it is cutting home purchase deed taxes from 3% to 1% for first- and second-house flat buyers. It’s the latest measure of a series that also include lower borrowing costs on existing mortgages, relaxing buying curbs in big cities and easing downpayment requirements. Policymakers hope to shore up the country’s ailing property sector, which is also weighing on consumer demand and business sentiment. Finance minister Lan Fo’an a few weeks ago unveiled a $1.4tn debt swap to ease the burden on local governments and pledged to carry out “more forceful” fiscal policies next year.

Daily Pivots: (S1) 153.72; (P) 154.32; (R1) 155.23; More...

Intraday bias in USD/JPY remains on the upside at this point. Current rise from 139.57 will target 61.8% projection of 141.63 to 153.87 from 151.27 at 158.8. On the downside, below 153.40 minor support will turn intraday bias neutral again first. But further rally is expected as long as 151.27 support holds, in case of retreat.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). The range of medium term consolidation should be set between 38.2% retracement of 102.58 to 161.94 at 139.26 and 161.94. Nevertheless, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8780; (P) 0.8808; (R1) 0.8845; More…

Intraday bias in USD/CHF is turned neutral first with current retreat. Outlook will stay bullish as long as 0.8700 support holds, in case of retreat. Break of 0.8840 temporary top will resume the rise from 0.8374 to 61.8% retracement of 0.9223 to 0.8374 at 0.8899. Sustained trading above there will pave the way towards 0.9223 high.

In the bigger picture, price actions from 0.8332 (2023 low) are currently seen as a medium term corrective pattern. Rise from 0.8374 is seen as the third leg. Overall outlook will continue to stay bearish as long as 0.9223 resistance holds. Break of 0.8332 low is in favor at a later stage when the consolidation completes.

Daily Pivots: (S1) 1.2685; (P) 1.2781; (R1) 1.2843; More...

Outlook in GBP/USD is unchanged and intraday bias stays on the downside. Decisive break of 61.8% retracement of 1.2298 to 1.3433 at 1.2732 will extend the decline from 1.3433 to 1.2298 key support. On the upside, above 1.2833 support turned resistance will turn intraday bias neutral and bring consolidations first.

In the bigger picture, considering mildly bearish divergence condition in D MACD, a medium term top is likely in place at 1.3433 already. Price actions from there are seen as correction to whole up trend from 1.0351 (2022 low). Deeper decline would be seen to 38.2% retracement of 1.0351 to 1.3433 at 1.2256, which is close to 1.2298 structural support. Strong support should be seen there to bring rebound.