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USD Edges Higher on Debt Ceiling Deal 

Could be Another Good Week for the US Dollar 

Debt Ceiling Jitters Drive FX Markets

USD Soft as Markets Digest Policy Prospects

25bps Rate Hike By The Fed Is All But Locked In

The Canadian Dollar Continues To Exhibit A Weak Tone

USD/CAD Likely to Target 1.32

CAD Tone Improves against the USD

Banking Woes Continue to Pressure the CAD

The CAD Managed a Respectable Gain Against the USD

CAD Continues to Weaken

The CAD is Finding it Difficult to Stand Out

The U.S. dollar has Experienced Significant Appreciation

CAD Higher on Strong Jobs and Higher Crude

Another 25bp Hike by the Feds Looks Likely after Blockbuster Payrolls Data

CAD Continues to Grind Higher; FOMC Rate Announcement Ahead

The CAD Has Fallen behind most of its Main Currency Rivals

Canada post Astronomically high Job Growth

FOMC out this Week; CAD Underperforming

The Worst Five-Day Performance Among the Major Currencies

Loonie Continues to Track Weak USD

The Softer Trend in Commodities

Broader Market Themes in the Week Ahead

Weekly Commentaries

<p><img src="https://content.mtfxgroup.com/uploads/wcu_08may23_inside_img_b9e3044c0c.png" alt="wcu-08may23-inside-img.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_08may23_inside_img_b9e3044c0c.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_08may23_inside_img_b9e3044c0c.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_08may23_inside_img_b9e3044c0c.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_08may23_inside_img_b9e3044c0c.png 1000w," sizes="100vw"></p><ul><li>Last week, the CAD experienced a gain of slightly more than 0.75% through mid-morning on Friday's trading session, this despite the USD rising unexpectedly last Tuesday and trading around or slightly above the 1.36 level for most of the week. Technical indicators suggest a mixed outlook for the CAD moving forward. While the USD still appears to be overvalued against the CAD, there are factors that are becoming more favorable for the CAD. Correlation matrices reveal that the CAD's relationships with softer commodities and stocks are strengthening, while its positive correlations with yield spreads remain weak but are improving, this may explain the recent positive trend in the CAD over the past few sessions.</li></ul><h3>USD Losses Likely to Accelerate</h3><ul><li>The USD appears to be weak overall as investors consider the possibility of US rate policy changes. The USD has already taken a hit from negative news, such as lower US yields, which has affected its performance in the past week. The market seems to have overpriced the USD's expected rate cuts of around 100 basis points by year-end. Similarly, the CAD's expected rate cuts of 25 basis points over the same period also appear excessive, despite the Bank of Canada's concerns about inflation and unfavorable data trends like the recent hourly wages report. Moreover, the US faces uncertainties such as stress in the banking sector and the debt ceiling issue that could lead to a more uncertain outlook in the coming weeks and months. Based on weekly models, it is projected that the spot will trade within a range of 1.3340-1.3630 with little change, but the downside of this projection seems more vulnerable.</li></ul><h3>The Week Ahead</h3><ul><li>This week, the focus is on US inflation as it is the most significant data release. While there are few other notable releases beyond the US CPI on Wednesday and PPI data on Thursday that could potentially impact the market, the preliminary May U. Michigan Sentiment data will be released on Friday, and there will be a few instances of Fedspeak, with Williams speaking on Tuesday and Bullard and Jefferson on Friday. The only Canadian data point scheduled for next week is Building Permits.</li></ul><h3>USD/CAD Technical Forecast</h3><ul><li>Technically, the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> pair is turning more USD-negative. Losses on Friday have taken the USD below key support levels. This week’s trading range is between 1.3340 – 1.3630.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_01may23_inside_img_c692b30116.png" alt="wcu-01may23-inside-img.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_01may23_inside_img_c692b30116.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_01may23_inside_img_c692b30116.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_01may23_inside_img_c692b30116.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_01may23_inside_img_c692b30116.png 1000w," sizes="100vw"></p><ul><li>Last week, the CAD traded defensively but experienced a positive turn on Friday afternoon, which transformed a potential monthly net loss into a minor net gain. While there was no substantial seasonal "bounce" for the CAD, it is possible for the CAD to sustain positive monthly returns in 2023. Despite challenging prospects, it seems probable that the CAD will continue to fluctuate within a wide, choppy range similar to the past few months. The CAD exhibits a strengthening correlation with weak domestic terms of trade and US equity markets. However, the CAD's fair value estimate suggests that it is significantly undervalued. Most analysts continue to expect the CAD to be driven by broader market theme instead of any domestic fundamentals.</li></ul><h3>The Week Ahead</h3><p><img src="https://content.mtfxgroup.com/uploads/wcu_01may23_inside_img_c692b30116.png" alt="wcu-01may23-inside-img.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_01may23_inside_img_c692b30116.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_01may23_inside_img_c692b30116.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_01may23_inside_img_c692b30116.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_01may23_inside_img_c692b30116.png 1000w," sizes="100vw"></p><ul><li>The upcoming week promises to be busy for markets, but Monday may feel a bit slow due to several closed markets. The major Canadian data reports, such as Thursday's Trade data and Friday's Apr jobs report, are mainly scheduled towards the end of the week, providing insight into how the economy is slowing after a strong Q1. The S&amp;P Global manufacturing PMI report is set to release on Monday, and the Ivey PMI report on Thursday. From the US, there will be a continuous flow of high-profile events, commencing with the manufacturing ISM/PMIs on Monday, followed by Factory Orders on Tuesday. ADP data and services ISM/PMIs are scheduled for Wednesday. On Wednesday afternoon, the FOMC decision and Chairman Powell's press conference will take place, with a 25bps hike in the 5.00% target rate expected. The USD's direction will be guided by insights on the rate outlook. US Trade and weekly claims data are scheduled for Thursday, and the Apr Non-Farm Payrolls report is set to release on Friday, with markets anticipating a clear decline in job creation to 180k.</li></ul><h3>This Week’s Technical Trading Range</h3><ul><li>From a technical point of view, a USD break under 1.3580/90 will drive more USD losses towards 1.3485/1.3515. Resistance is 1.3655/65 and 1.3730.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wkk_811092dba0.jpg" alt="wkk.jpg" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wkk_811092dba0.jpg 245w,https://content.mtfxgroup.com/uploads/small_wkk_811092dba0.jpg 500w,https://content.mtfxgroup.com/uploads/medium_wkk_811092dba0.jpg 750w,https://content.mtfxgroup.com/uploads/large_wkk_811092dba0.jpg 1000w," sizes="100vw"></p><ul><li>Last week, the CAD experienced a gain of slightly more than 0.75% through mid-morning on Friday's trading session, this despite the USD rising unexpectedly last Tuesday and trading around or slightly above the 1.36 level for most of the week. Technical indicators suggest a mixed outlook for the CAD moving forward. While the USD still appears to be overvalued against the CAD, there are factors that are becoming more favorable for the CAD. Correlation matrices reveal that the CAD's relationships with softer commodities and stocks are strengthening, while its positive correlations with yield spreads remain weak but are improving, this may explain the recent positive trend in the CAD over the past few sessions.</li></ul><h3 style="margin-left:0px;">USD Losses Likely to Accelerate</h3><ul><li>The USD appears to be weak overall as investors consider the possibility of US rate policy changes. The USD has already taken a hit from negative news, such as lower US yields, which has affected its performance in the past week. The market seems to have overpriced the USD's expected rate cuts of around 100 basis points by year-end. Similarly, the CAD's expected rate cuts of 25 basis points over the same period also appear excessive, despite the Bank of Canada's concerns about inflation and unfavorable data trends like the recent hourly wages report. Moreover, the US faces uncertainties such as stress in the banking sector and the debt ceiling issue that could lead to a more uncertain outlook in the coming weeks and months. Based on weekly models, it is projected that the spot will trade within a range of 1.3340-1.3630 with little change, but the downside of this projection seems more vulnerable.</li></ul><h3 style="margin-left:0px;">The Week Ahead</h3><ul><li>This week, the focus is on US inflation as it is the most significant data release. While there are few other notable releases beyond the US CPI on Wednesday and PPI data on Thursday that could potentially impact the market, the preliminary May U. Michigan Sentiment data will be released on Friday, and there will be a few instances of Fedspeak, with Williams speaking on Tuesday and Bullard and Jefferson on Friday. The only Canadian data point scheduled for next week is Building Permits.</li></ul><h3 style="margin-left:0px;">USD/CAD Technical Forecast</h3><ul><li>Technically, the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> pair is turning more USD-negative. Losses on Friday have taken the USD below key support levels. This week’s trading range is between 1.3340 – 1.3630.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/mcu_17april23_inside_img_00195322dd.png" alt="mcu-17april23-inside-img.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_mcu_17april23_inside_img_00195322dd.png 245w,https://content.mtfxgroup.com/uploads/small_mcu_17april23_inside_img_00195322dd.png 500w,https://content.mtfxgroup.com/uploads/medium_mcu_17april23_inside_img_00195322dd.png 750w,https://content.mtfxgroup.com/uploads/large_mcu_17april23_inside_img_00195322dd.png 1000w," sizes="100vw"></p><ul><li>Over the past week, the USD dropped around 1.3% in value against the CAD. This has resulted in the CAD exhibiting its strongest 4-week performance since November. This shift in the currency market was expected as the CAD was undervalued and typically experiences support in April due to seasonal patterns. Additionally, the CAD generally performs better than the USD in Q2/Q3. Additionally, despite the significant narrowing of spreads against the USD in the past few weeks, they widened significantly again following some comments from Fed Governor Waller on Friday.</li></ul><h3>Risks Tilted toward USD Weakness</h3><ul><li>Technical indicators continue to suggest that the CAD is undervalued, and there have been some changes in the CAD's correlations with other factors in recent weeks. For instance, the CAD's correlation with improving terms of trade and stronger crude oil prices has become slightly stronger, although these correlations remain statistically insignificant. Nonetheless, they provide some minor tailwinds for the CAD. Looking forward, we believe that the risks are mostly tilted towards further weakening of the USD in the coming months. This is due to the Fed rate cycle being close to its peak, US inflation set to slow in the next few months, and US employment trends potentially weakening. As a result, market expectations are likely to reflect an earlier start to the Fed's easing cycle. In a recent press conference, Bank of Canada Governor stressed that policymakers did not see a rate cut happening later this year. Finally, the theme of "high for longer" is also likely to be observed in Canada.</li></ul><h3>The Week Ahead</h3><ul><li>In the coming week, there will be a consistent stream of data reports from the US. The most noteworthy of these reports may be the April survey data (NY and Philadelphia Fed, S&amp;P Global PMIs), which could offer a better understanding of how the recent banking sector stress is affecting business confidence. The Fed's Beige Book, set for release on Wednesday ahead of the May 3rd policy decision could also provide insight. In Canada, the March CPI report will be released on Tuesday, followed by Retail Sales data on Friday. While there are no forecasts for these releases yet, we can expect some moderation in headline CPI. However, core prices may remain somewhat elevated, which is why Governor Macklem was keen to play down the possibility of rate cuts in Canada during last week's post-rate decision press conference.</li></ul><h3>This Week’s USD/CAD Trading Range</h3><ul><li>Technically, expect the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> to trade between 1.32 -1.3450 in the week ahead.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_3april23_website_inside_img_7ee65baaa6.png" alt="wcu-3april23-website-inside-img.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_3april23_website_inside_img_7ee65baaa6.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_3april23_website_inside_img_7ee65baaa6.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_3april23_website_inside_img_7ee65baaa6.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_3april23_website_inside_img_7ee65baaa6.png 1000w," sizes="100vw"></p><ul><li>Last week saw a strong performance for the CAD. It was the best-performing G10 currency against a generally soft USD. Given that the CAD has moved more or less in line with the general USD tone over the last several months, this was an obvious trend break. But, the underlying context has not altered materially, and it is challenging to define precisely why the CAD has brightened in the manner that it has. The risk environment has improved, and it's possible that CAD gains are due to month- and quarter-end flows that may slow down as we head into April. Yet, several indicators have grown increasingly obvious that suggest the CAD may be breaking out of the soft run of form against the USD that has mainly defined its Q1 performance.</li></ul><h3>Could the CAD Appreciate in April?</h3><ul><li>The CAD appears to be undervalued, according to fair value models. It is now being undervalued to relatively extreme levels according to several FX models. Seasonality is also set to become more favorable for the CAD. For the CAD against the USD, April is the best month of the year. Since 2002, the Dollar has experienced an April return of little over 1% on average. The CAD still has a long way to go before it gains significantly, but it shouldn't be ruled out that further gains are highly likely in the upcoming weeks.</li></ul><h3>The Week Ahead</h3><ul><li>Easter next week complicates the economic calendar a little (Friday is a market holiday in Canada while it is not a Federal holiday in the US). The Bank of Canada will deliver its Q1 Business Outlook Survey on Monday, and policymakers will use it to evaluate growth patterns, labor market tightness, and inflationary pressures in the months to come (recall the Q4 report reflected slowing growth prospects but elevated inflation expectations). High frequency statistics do indicate a recent deceleration in growth momentum, even though Q1 growth seems to be tracking a little better than the BoC anticipated. Due to the Good Friday holiday, the March jobs data are announced on Thursday and the February trade data are issued on Wednesday. The US releases its ISM and PMI Manufacturing data on Monday and its Services data on Wednesday. The final Durable Goods statistics and Factory Orders for February are both published on Tuesday. The Non-Farm Payroll report is released on Friday, when many financial centers will be closed, while the February Trade report is released on Wednesday. Early estimates for payrolls point to a rise of 240k.</li></ul><h3>USD/CAD Technical Analysis</h3><ul><li><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> is heading for a third, consecutive lower weekly close and its lowest close in five weeks after peeling off from the mid-1.38 zone through March. Look for the CAD to possibly push below the 1.35 handle in the coming weeks.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_27march23_website_inside_img_cf08e1f526.png" alt="wcu-27march23-website-inside-img.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_27march23_website_inside_img_cf08e1f526.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_27march23_website_inside_img_cf08e1f526.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_27march23_website_inside_img_cf08e1f526.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_27march23_website_inside_img_cf08e1f526.png 1000w," sizes="100vw"></p><ul><li>Last week, the CAD underperformed, falling behind the USD, which was generally weaker. The US dollar has declined as investors pay focus on the possibility of falling US interest rates in the midst of the simmering regional financial crisis in the US. The currency has been unable to gain any real "safe haven" support amid the volatility. The performance of the USD has been mainly influenced by the rapid evolution in Fed interest rate expectations. The FOMC's decision last week was moderately dovish; it included a 25 bps increase and a moderating of its forward guidance, indicating that the tightening cycle is almost over. Amid the pressure on the banking system, markets have now priced out any further Fed rate increases and are projecting possible rate cuts by year's end.</li></ul><h3>USD Likely to Extend Gains</h3><ul><li>The CAD has not benefited from the narrowing of spreads in its favor. If US yields keep declining, this might become a bigger issue in the long term because sticky inflation might make it harder for lower rates to take hold in the US. In reality, the CAD has lost considerable ground on the important crosses and has tended to trade more or less in line with the USD. Market turbulence continues to be a barrier for the CAD. The turbulence in the banking industry is, in part, blowing around the CAD. While the projected fair value is tracking lower, the spot rate is trending higher, possibly due to narrower spreads and rising crude oil costs.</li></ul><h3>The Week Ahead</h3><ul><li>Data and incident risk for Canada are very low for the upcoming week. On the statistics front, the Jan. GDP figures are released on Friday. The BoC's DG Gravelle will speak on Wednesday about the market liquidity actions the Bank took during the Covid epidemic. These remarks might not go too far into the outlook for monetary policy at the moment, but the summary of the discussions leading up to the Mar policy decision, which was released last week, removing any doubts about the likelihood that rate policy will be on pause for a while. Tuesday in the US sees the release of the Mar Conference Board Consumer Confidence report, housing statistics, and the Feb Wholesale Inventories. The final reading of Q4 GDP is released Thursday and Feb Personal Income/Spending data are out on Friday. Observe&nbsp;the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</li></ul><h3>This Week’s Trading Range</h3><ul><li>From a technical perspective, expect the USD to trade toward USD strength, possibly extending north of the 1.38 handle. This week’s trading forecast: 1.3650 – 1.3825.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_20march23_inside_39b2a0aed1.png" alt="wcu-20march23-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_20march23_inside_39b2a0aed1.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_20march23_inside_39b2a0aed1.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_20march23_inside_39b2a0aed1.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_20march23_inside_39b2a0aed1.png 1000w," sizes="100vw"></p><ul><li>In spite of market volatility and increased banking sector anxiety, the CAD managed a respectable gain against the USD last week. In comparison to a fair value estimate, the CAD continues to appear cheap. Even while the correlations between the equity markets and the performance of the CAD have loosened recently, they still have some impact on the loonie's valuation. A solid gain on the week now looks likely for US stocks after the main indices dropped to the lowest since Jan earlier last week.</li></ul><h3>Choppy Range Trade Remains the Main Theme</h3><ul><li>Investor apathy towards the CAD may be fueled by the absence of a distinct narrative driving the currency. This suggests for more choppy range trade in the CAD in the short run as spot tracks the general USD tone and the overall market risk backdrop. We are, however, getting close to the conclusion of the CAD's seasonal soft patch, which could suggest that as we enter Q2, a more convincing, CAD-positive story will start to develop. Our model predicts that the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> will trade in a wide range this week, between 1.3610 and 1.3920.</li></ul><h3>The Week Ahead</h3><ul><li>This week, Canada only has a few announcements, including the Feb CPI on Tuesday and the Jan Retail Sales on Friday. The CPI print for this week is the final print before the policy decision on April 12. The hurdle for higher rates in Canada remains high, made even higher by the recent volatility in bank stock prices, so it is unlikely that the February statistics would have an immediate impact on policymakers. Yet, persistently sticky prices could cast doubt on the durability of the Bank's policy hold. Data reports indicate that the Canadian economy is coping reasonably well in the early months of 2023; yet, tight labor markets, rapid wage growth, and persistent inflation may possibly push the Bank to resume tightening. On Wednesday, a summary of the discussions leading up to the March 8th policy decision will be made public. Also, there aren't many American data releases. Highlights include the FOMC decision on Wednesday and Chairman Powell's press conference; the market anticipates a 25bps raise.</li></ul><h3>USD/CAD Trading Range</h3><ul><li><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD’s</a> technical picture is mixed; we look for firm resistance at 1.3850/60 while key support remains around 1.3650/60. A break under the mid-1.36 area should see spot edge back to the low-1.35 area.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_13march23_inside_471994ed12.png" alt="wcu-13march23-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_13march23_inside_471994ed12.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_13march23_inside_471994ed12.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_13march23_inside_471994ed12.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_13march23_inside_471994ed12.png 1000w," sizes="100vw"></p><ul><li>The CAD had a terrible past week. Losses versus the USD have widened more than expected, but on some crosses, the CAD has been able to find some support. Focus on the BoC's policy hold compared to the Fed's more hawkish tone and soft equities drove <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> through the mid-1.38s on Friday before weaker than anticipated attributes of the US jobs report (higher unemployment and soft wage growth) contrasted with an overall strong Canadian employment report to lift the CAD modestly.</li></ul><h3>US Equity Markets and Spreads Driving Direction</h3><ul><li>Markets will probably continue to pay close attention to US rates and equity market developments for the direction of currencies in the coming week. Its correlation with US equity markets is continuing to weaken, which is excellent news for the CAD. That said, correlations with spreads, which have shifted further in favour of the USD last week, are strengthening, which is bad news for the CAD. Although it's unclear how much further term spreads can favour the USD at this point, hotter than anticipated US inflation this week will probably cause US rates to bounce and markets to reprice Fed forecasts a little more hawkishly. Based on our fair value estimate, the CAD appears to be undervalued—yet again—but recent movement of the components has been clearly in favor of a higher USD valuation. The USD has only modest upward potential from here in the next week inside a band of 1.36/1.39, according to an overextended USD.</li></ul><h3>The Week Ahead</h3><ul><li>In terms of event risk, the week is off to a slow start. With the CPI, PPI, and Import Prices due on Tuesday, Wednesday, and Thursday, respectively, the American calendar is all about inflation. The week is concluded by Wednesday's retail sales statistics and March survey results. For markets, Inflation is the main concern and the main risk. Another strong CPI report may easily reverse the dovish response to Friday's US jobs and pay statistics. In response to the jobs report and the tremors in the US financial industry, yields also fell, but if this week's inflation readings are strong, those losses could quickly be reversed. Considering how little Canadian data is released, Manufacturing Sales and Wholesale Trade could help to further fill out the early 2023 activity pattern.</li></ul><h3>This Week’s Trading Range</h3><ul><li>Technically, the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> should trade between 1.36/1.39 in the coming week. CAD may be finding a foothold in the mid-1.38s but a move under 1.3750 support is needed to drive more CAD gains to the 1.36s. Resistance is 1.3850/60 and the Oct high at 1.3972.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_6march23_inside_6b114e76b9.png" alt="wcu-6march23-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_6march23_inside_6b114e76b9.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_6march23_inside_6b114e76b9.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_6march23_inside_6b114e76b9.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_6march23_inside_6b114e76b9.png 1000w," sizes="100vw"></p><ul><li>Another bad week for the CAD as it lost ground to a weaker-than-expected USD. The CAD is finding it difficult to stand out among its major currency counterparts in a favourable way. While the BoC rate freeze is expected to remain, the Fed and other key central banks are raising interest rates, while investors are arguing whether the Fed's tightening cycle will last longer than originally anticipated by the markets (which seems very possible). Price movement on Friday revealed the CAD's challenges in gaining any ground.</li></ul><h3>Spreads Driving USD/CAD Direction</h3><ul><li>The majority of fair value models suggest that the CAD is considerably undervalued. The noticeable decoupling between the CAD and the S&amp;P 500 is an intriguing trend. Spreads are once again the main factor influencing the CAD—at least for the time being. There is minimal prospect of any shrinking in the US/Canada 5Y spreads, based on this week's developments (unchanged BoC, possibly hawkish-sounding Fed) (which have widened against the CAD to 70bps, the biggest yield gap over the USD since Dec).Observe the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</li></ul><h3>The Week Ahead</h3><ul><li>Although the data calendar for the upcoming week appears sparse, it is significant. Prior to Friday's employment report, the Feb. Ivey PMI and the Jan. trade statistics in Canada are the early-week headlines on the economic data front. The BoC policy decision is without a doubt the week's high point . Without a doubt, the Bank's "conditional" suspension will continue. Yet, the policy statement may acknowledge the labor market's resiliency and sticky core inflation, which could make it sound a little hawkish. Market pricing reflects the belief that the BoC will resume tightening its monetary policy later this year, but the Bank this week may not give much of a signal in that direction. It is NFP week in the US, and markets anticipate a 220k increase in employment and an increase in hourly wages. On Tuesday, Fed Chairman Powell will present the Senate with his semi-annual report on monetary policy. As long as inflationary pressures remain high, Chair Powell runs the danger of seeming hawkish. While more tightening is undoubtedly a possibility, he might not give much insight into whether the Fed will stick with 25 bps raises in March or switch back to 50 bps hikes.</li></ul><h3>This Week’s USD/CAD Trading Range</h3><ul><li>Technically, Support is 1.3535/55 (and I would expect that to hold early next week, at least). Resistance is 1.3665, ahead of 1.3700/10 and 1.3830.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_27feb23_inside_4671503eae.png" alt="wcu-27feb23-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_27feb23_inside_4671503eae.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_27feb23_inside_4671503eae.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_27feb23_inside_4671503eae.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_27feb23_inside_4671503eae.png 1000w," sizes="100vw"></p><ul><li>The USD has made large gains, and some of the major currencies have suffered heavy losses beyond the CAD's 1% decline versus the US dollar over the previous week. Notwithstanding the CAD's decline last week, it was not unusual for the USD to have broad gains. The markets' growing optimism that the Fed's tightening cycle would continue for a little longer than anticipated has contributed to the USD's rise. The core PCE numbers for January were released on Friday and provided support for that belief. A further 75bps of tightening over the upcoming three FOMC meetings is completely priced in by the markets. The odds of the BoC tightening policy again are increased by this shift, but the threshold for further tightening in Canada now appears to be very high. While longer-term rate differentials are largely stable, spreads, which are a modest USD-plus, are beginning to widen once more in favour of the USD. Given that the CAD still has a high, positive correlation with US equities, weaker stocks continue to be a key challenge for the currency.</li></ul><h3>Fair Value Models Suggest Sustained USD Strength</h3><ul><li>Our value models show some short-term overvaluation of the USD; this could impede near-term USD gains against the CAD. It's crucial to note, however, that in recent weeks, the model's input variables have been shifting in favor of a higher USD. All things considered, a stronger USD in the short term—or at the very least, a USD that is well supported on modest pullbacks—seems to be a very possible outcome. Models predict little room for CAD advances next week and a probable range of 1.3460/1.3770.</li></ul><h3>The Week Ahead</h3><ul><li>There aren't many high-profile Canadian releases scheduled for this week, and there aren't many central bank speakers either. The Dec. and Q4 GDP numbers for Canada are likely the most important ones (Tuesday). Building Permits are released on Friday, while the February S&amp;P Global Manufacturing PMI figures are released on Wednesday. Domestic data releases aren't likely to have much of an immediate impact on market mood. The Bank of Canada has obviously withdrawn and is likely to keep a neutral stance for some time (even if markets continue to price in a return to tightening around mid-year). Highlights in the US include the Jan durable goods data (Monday), the Feb consumer confidence data from the Conference Board (Tuesday), the ISM Manufacturing data (Wednesday), and the Services data (Friday). While investors continue to consider the prospects for Fed policy, the price components of the ISM data may be the most intriguing portion of these data reports.</li></ul><h3>This Week’s USD/CAD Trade Range</h3><ul><li>Technical factors point to a sustained USD uptrend versus the CAD. Look for the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> to trade between 1.3460/1.3770.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_13feb23_outside_2a787cd751.png" alt="wcu-13feb23-outside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_13feb23_outside_2a787cd751.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_13feb23_outside_2a787cd751.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_13feb23_outside_2a787cd751.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_13feb23_outside_2a787cd751.png 1000w," sizes="100vw"></p><ul><li>The CAD ended the past week on a positive note. Several recent events contribute to this explanation. First, and most obviously, there was a 150k net increase in jobs reported in the Jan labor market report, of which 121k were full-time positions. Hours worked across the economy increased by a very strong 0.8% in the month, and wage growth is still very strong. The data point on hours worked indicates that the Canadian economy is off to a very strong Q1 start. More generally, the employment numbers strongly indicate that following a slowdown in hiring around the middle of last year, the labour market trends are now rebounding aggressively. For the BoC, this is not a welcomed trend because officials have emphasized that in order to attain price stability, the labor market must cool and wages must decline. Following Friday's report, markets have reacted by slightly increasing the probability of the BoC raising rates again around the middle of the year, while longer-term predictions have reduced the risk of a late-year BoC easing, suggesting that rates will remain high for longer.</li><li>The sudden increase in crude oil prices last week as a result of Russia reducing oil production added to CAD gains. The effectiveness of this threat remains to be assessed, but during the past few weeks, there has been a stronger association between CAD and crude. A stronger link with rising prices for crude or commodities in general will be favorable for the CAD. Spot is trading roughly at fair value estimates right now (around 1.3350), which, other things being equal, should limit the potential for <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD</a> advances from here.</li></ul><h3>The Week Ahead</h3><ul><li>In the upcoming week, Canada will only release a limited market moving data: Manufacturing Sales and Housing Starts on Wednesday, and Industrial Product Price data on Friday. The theme of the US data calendar is inflation. The Jan CPI report, which is anticipated to show further reduction in headline prices, kicks off the data season on Tuesday. PPI numbers are announced on Thursday, and import prices are revealed on Friday. Important announcements include the beginning of the February round of regional Fed surveys (NY and Philly Fed reports), as well as the important Feb NAHB survey and Jan housing starts and building permits. Additionally, a number of Fed policymakers, including Harker, Williams, Mester, and Bullard, will be giving speeches.</li></ul><h3>This Week’s Trading Range</h3><ul><li>Technically the range for the week is 1.3295/00 to 1.3475/80. We still see CAD pushing lower toward 1.30 over the coming months.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_6feb23_inside_87d9c281d4.png" alt="wcu-6feb23-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_6feb23_inside_87d9c281d4.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_6feb23_inside_87d9c281d4.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_6feb23_inside_87d9c281d4.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_6feb23_inside_87d9c281d4.png 1000w," sizes="100vw"></p><h3>USD - US Dollar</h3><ul><li>The January jobs report in the US on Friday smashed expectations, showing a half-million increase in employment and the jobless rate falling to 3.4%. Such a strong print surprisingly – but clearly – signals employers are still willing to hire despite multi-month falls in industrial production, residential construction output and disappointing consumer spending. One silver lining is that the wage growth slowed from a revised 4.8% to 4.4% year-on-year, a signal that firms are able to hire without offering meaningfully higher salaries despite the very tight labour supply.</li><li>This is clearly an inflationary jobs market on paper, and another 25bp hike by the Fed looks highly likely. The data calendar is rather quiet in the US this week, which leaves geopolitical themes more space to drive market sentiment. Hopes of an improvement in US-China relations have plummeted after the US shot down a Chinese air balloon which they claim contained spy equipment. China has reiterated it was a civilian aircraft that had strayed off course and reached US airspace, and has threatened retaliation. We expect the USD to consolidate for the week until new first-tier data in the US are released next week which could reignite the re-rating of US growth and Fed rate expectations.</li></ul><h3>CAD - Canadian Dollar</h3><ul><li>Canada's Ivey purchasing managers survey data print is unlikely to disrupt the corrective forces that are weighing on the Canadian dollar. The continued sell-off in US equities add to the weak backdrop. The greenback has approached 1.3450 after finishing last week a little below 1.3400. Look for the loonie to take direction from broader external factors rather than any domestic drivers to start the week.</li></ul><h3>EUR - Euro</h3><ul><li>This is likely to be a much quieter week in the eurozone. The big rally in EZ bonds after ECB President Christine Lagarde failed in her rate protest last week is another signal that the ECB has lost its grip on the rate market, and this is not great news for the euro. This could mean that another large <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> move may need to wait until the second quarter, when US short-term rates look more likely to drop and markets may gradually align with a “higher-for-longer” narrative by the ECB. Comments by ECB officials are the most interesting risk events to follow in the eurozone this week and we expect the pair to trade in the 1.0700-1.0900 area.</li></ul><h3>GBP - British Pound</h3><ul><li>Growth data is the highlight of this week’s UK calendar. Most analysts expect the British economy to have narrowly avoided a technical recession in the fourth quarter. Still, a 1Q23-2Q23 recession is more than possible, although that could be milder than previously expected thanks to lower energy prices. Growth data and BoE speakers will be the two domestic inputs for the pound this week, although global risk sentiment, geopolitical developments and a supported dollar may work against any positive domestic news. <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=GBP">GBP/USD</a> may heavily test 1.2000 in the coming days.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_30jan23_inside_ca72c42fbd.png" alt="wcu-30jan23-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_30jan23_inside_ca72c42fbd.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_30jan23_inside_ca72c42fbd.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_30jan23_inside_ca72c42fbd.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_30jan23_inside_ca72c42fbd.png 1000w," sizes="100vw"></p><ul><li>The CAD extended its streak of sporadic weekly advances to six last week by scraping out a tiny gain against a sluggish USD. The "dovish hike" and the Bank of Canada's signal of a conditional pause in the tightening cycle, which most of us interpret to signify the cycle's peak, essentially met expectations. It’s over the Fed now and the coming Wednesday’s policy decision is also expected to reflect a moderation in policy making—a step down to a 25bps rate hike some sort of concession that rates are nearing restrictive.</li></ul><h3>USD and CAD Likely to Underperform</h3><ul><li>With the EUR, GBP, AUD, NZD, and JPY all brushing up against some crucial, technical break out points against the USD, the overall USD trend is sluggish and may become considerably softer. The CAD (and the USD) will be at a relative disadvantage to the EUR, GBP, and AUD in the coming months, and we expect more CAD underperformance on these crosses because the ECB, BoE, and RBA are still actively tightening their monetary policy while the BOJ may be moving closer to abandoning its super-policy accommodation. The CAD can still outperform a lower USD, but there are currently few opportunities for prolonged gains. We continue to believe that the CAD will only improve more sustainably in the second half of the year when the global monetary policy cycle matures and risk appetite dramatically increases.</li></ul><h3>The Week Ahead</h3><ul><li>On Tuesday, Canada releases its November GDP, on Wednesday its January Manufacturing PMI data, and on Thursday its December building permits. The better-than-expected growth profile for the Canadian economy in Q4 should be reflected in the monthly GDP data. There are several high-caliber releases and event risks on the US calendar. Both the ISM Manufacturing report and the Jan ADP statistics are released on Wednesday. The FOMC policy decision Wednesday afternoon is expected to result in a 25bps hike in the target rate to 4.50%. Powell’s press conference may concede that policy is getting closer to restrictive but there is still a bit more work to do. Policy makers have been quite adamant that the policy rate needs to get to a little above 5%. Data for January NFP and average hourly earnings are released on Friday (the early consensus call is for a 180k gain in jobs). The Jan ISM Services statistics are released later in the morning and are anticipated to rebound after falling below 50 in December. After dipping in Dec, the overall trend in US data surprises is still weak. Unexpectedly weak forthcoming data could increase fears about a slowdown into the first half of 2023.</li></ul><h3>This Week’s USD/CAD Technical Trading Range</h3><ul><li>The week-ahead model anticipates flat trading in <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> around the low 1.33s within a 1.3170/1.3485 range.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_16jan23_inside_092e13cc69.png" alt="wcu-16jan23-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_16jan23_inside_092e13cc69.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_16jan23_inside_092e13cc69.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_16jan23_inside_092e13cc69.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_16jan23_inside_092e13cc69.png 1000w," sizes="100vw"></p><ul><li>The CAD rose to the mid-1.33s last Thursday thanks to the USD's decline and a rise in risk appetite, but a USD recovery on Friday reduced CAD gains to only 0.15% for the week, one of the worst performances in the major currency sector. As a result, the CAD has fallen behind most of its main currency rivals significantly and has lost momentum on major crosses. The notion that the cycle of monetary policy tightening is about to peak is being applied to the CAD in a way that unfairly compares it to the USD. Last year, the CAD benefited from the USD's tailwinds, but this year, given the maturity of North American rate cycle, it seems likely that the CAD will underperform on the crosses.</li></ul><h3>The Week ahead</h3><ul><li>This week, there will be a lot of data to sort through. The Bank of Canada's Business Outlook Survey for Q4 will provide information on price and growth predictions, and it is one of today's highlights for Canadian data. On Tuesday, the December CPI report is released, and on Friday, retail sales figures. The headline CPI report for December is predicted to be weak, with a monthly decline of 0.6% and an annual increase of 6.3%. Core prices are anticipated to be quite stable and drop very modestly from November. Markets are still factoring in the possibility of the BoC tightening at the month's conclusion based on firm data from late last year and unexpectedly strong employment growth in December. The Martin Luther King Jr. holiday falls on Monday in the US. A lot of housing data will be released throughout the week, with some of the highlights being the Jan NY and Philly Fed surveys (released on Tuesday and Thursday, respectively), the Dec Retail Sales report (released on Tuesday), and the PPI and IP reports (released on Wednesday). On Wednesday, the Fed's Beige book will be published.</li></ul><h3>USD/CAD Likely to Remain Rangebound</h3><ul><li>Since Dec., the CAD has had a tendency to trade at a discount to the projected fair value. Early January price action somewhat reversed that underperformance, but spot gains have left the USD over fair value, which should restrict the potential for further increases. Models predict some downside risk for spot within a 1.3255/1.3575 range for the upcoming week. Given the weak USD tone, the downtrend seems fair, but neither range extreme may be reached without some large data surprises or greater action in the stock market. Observe the&nbsp;<a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>&nbsp;trends.</li></ul><h3>This Week’s Technical Range</h3><ul><li>Support is located at 1.3270 while resistance is located at 1.3500.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_9jan23_inside_992e6350ed.png" alt="wcu-9jan23-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_9jan23_inside_992e6350ed.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_9jan23_inside_992e6350ed.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_9jan23_inside_992e6350ed.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_9jan23_inside_992e6350ed.png 1000w," sizes="100vw"></p><ul><li>Last week's week saw a strengthening of the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">CAD</a> against the USD. US employment figures were less than anticipated but in line with predictions. Data on average hourly earnings for December suggest that Fed policymakers, who have been worried that the tight labor market is causing inflation, should be less concerned. Canada, on the other hand, posted astronomical employment figures (+104k in December) and a decrease in the jobless rate. The market is pricing in a 25 bps hike at the end of the month with a probability of about 75%, despite pricing reflecting some easing of Fed rate hike expectations for the month of February.</li><li>In the coming week, slower US wage growth may make the likelihood of a 1/4-point raise by the FOMC in early February more obvious. At the end of the month, BoC policymakers will have to take into account growing core inflation, high wages, and tight labour markets, increasing the possibility that they will raise interest rates by 1/4 of a point. A flat to slightly lower trading range between 1.3375 and 1.3695 is predicted by weekly models for the upcoming week. Although the bottom end of that range is unattainable without a major increase in risk appetite, the upper zone of that range appears to be solid.</li><li>This week, there aren't many noteworthy economic reports from Canada. The domestic housing market's downturn should be reflected in both building permits and existing home sales. Headline prices are expected to remain unchanged in the month, clipping the y/y pace of growth to 6.6% (from 7.1% in Nov). Headline prices are expected to remain unchanged in the month, clipping the y/y pace of growth to 6.6% (from 7.1% in Nov). Flat headline prices in Dec should set CPI up for a further deceleration in the next few months. A soft CPI print will be a plus for the CAD and a negative for the USD. There are a number of Fed speakers this week as well.</li><li>The current expected trading range for the week 1.3375 -1.3695.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_12dec22_inside_98138f4554.png" alt="wcu-12dec22-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_12dec22_inside_98138f4554.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_12dec22_inside_98138f4554.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_12dec22_inside_98138f4554.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_12dec22_inside_98138f4554.png 1000w," sizes="100vw"></p><ul><li>Another week of underperformance for the CAD is to be expected. Against the USD and most of its main currency rivals, the CAD has fallen 1.3%. The expected outcome of the Bank of Canada's policy decision—a 50bps hike—came and went, but at least it left the possibility of a small amount of additional tightening early in the new year. The Bank's communications indicate that it is close to ending its cycle of tightening while it "considers" whether more tightening is necessary. A further 25bps in H1 of the next year is 100% likely, according to the swap market. More details might be revealed in Governor Macklem's year-end statements early the this.</li></ul><h3>CAD Direction Continues to be Influenced by Equities</h3><ul><li>The USD is currently trading at a premium to fair value estimates (1.3483) but the CAD has declined along with US equity markets last week, highlighting the continuing significant impact of risk appetite on the CAD's short-term performance. The level of correlations is still quite high (90%+), and the direction of the CAD will continue to be significantly influenced by equities in the upcoming week. Our analysis of the likely range for <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> for the coming week indicates that a very slight downside risk exists within the range of 1.3420–1.3750 due to the overvaluation of the US dollar. We continue to look for the USD to weaken in the medium term— the top of the Fed tightening cycle is close and markets will soon start to anticipate the cycle peak and possibly lower rates next year. The same is true for the Bank of Canada, but the CAD should benefit from a sustained improvement in risk appetite as the Fed cycle transitions.</li><li>Calendar risk this week is meaningful. Canada releases Manufacturing Sales (Wednesday), housing data (Thursday) and Wholesale Trade (Friday). The main event risk comes from the US. Tuesday’s Nov Small Business Optimism Index is worth watching for further signs of weaker pricing power among businesses. The Nov CPI report itself is out the same day. Wednesday’s FOMC meeting is expected to result in a 50bps hike. The Dec regional Fed surveys get going Thursday. December PMIs are out Friday.</li><li>This week’s trading range is likely between 1.3350 – 1.3750.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_5dec22_inside_275dbc0f1a.jpg" alt="wcu-5dec22-inside.jpg" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_5dec22_inside_275dbc0f1a.jpg 245w,https://content.mtfxgroup.com/uploads/small_wcu_5dec22_inside_275dbc0f1a.jpg 500w,https://content.mtfxgroup.com/uploads/medium_wcu_5dec22_inside_275dbc0f1a.jpg 750w,https://content.mtfxgroup.com/uploads/large_wcu_5dec22_inside_275dbc0f1a.jpg 1000w," sizes="100vw"></p><ul><li>The CAD underperformed once more last week and has had the worst five-day performance among the major currencies. In contrast to a generally weak USD, the CAD fell by about 0.7% during the past week. CAD weakness on the key crosses has increased as the JPY has increased by 2.8%, the GBP by 0.9%, and the EUR by 0.8%. In the upcoming months, this theme is likely going to continue. In the first nine months of this year, the CAD underperformed its major currency peers but gained ground versus a generally stronger USD. We anticipate that the CAD will continue to struggle against the USD and reverse against the majority of the gains made earlier as the broader USD bull trend moderates and shows signs of a deeper reversal. The push and pull of the crosses and USD trends likely mean a wide and choppy range trade for <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> will persist through the early part of 2023 at least.</li></ul><h3>CAD Remains Slightly Undervalued</h3><ul><li>Technical analysis shows that the CAD is slightly undervalued. The USD is trading substantially over 1.34, compared to an estimated equilibrium of 1.3317, due to post-NFP data volatility. Unsurprisingly, the week ahead component of the model implies that spot has a small amount of potential downside during the upcoming week. The implied range of 1.3285 to 1.3610 accurately depicts the possible trading range for spot. Although correlations are typically improving, the risk environment continues to have a significant impact on the performance of the CAD via correlations with the S&amp;P 500.</li></ul><h3>Bank of Canada’s Policy Announcement</h3><ul><li>This week's scant Canadian data is not expected to have much of an impact on market sentiment either before or after the Bank of Canada's policy announcement on Wednesday. The consensus projection reflects experts' evenly divided opinions on whether the Bank will raise rates by 25 basis points or by 50 basis points (12 responses per side in the Bloomberg survey). Given the strong economic growth, persistently high inflation, and heightened inflation expectations, a prudent call would be for an increase of 50 basis points to bring the overnight rate to 4.25%, where we anticipate the bank to rest for the upcoming few months. The slowdown in the domestic housing market and concerns about high household mortgage debt could argue for a more moderate hike but there are clear doubts about whether the bank has sufficient evidence to downshift on hikes again. Pricing has firmed up following today’s Canadian jobs employment report which showed on expectations jobs growth but still elevated wages and a lower unemployment rate.</li></ul><h3>This Week’s Technical Range</h3><ul><li>Key support next week remains at 1.3380/90 ahead of 1.3215 while resistance is 1.3545/50 and (strong at) 1.3615.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_28nov22_inside_320e02d9e3.jpg" alt="wcu-28nov22-inside.jpg" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_28nov22_inside_320e02d9e3.jpg 245w,https://content.mtfxgroup.com/uploads/small_wcu_28nov22_inside_320e02d9e3.jpg 500w,https://content.mtfxgroup.com/uploads/medium_wcu_28nov22_inside_320e02d9e3.jpg 750w,https://content.mtfxgroup.com/uploads/large_wcu_28nov22_inside_320e02d9e3.jpg 1000w," sizes="100vw"></p><ul><li>Last week, the CAD disappointed, finishing flat against a generally weaker USD. As a result, the CAD has continued to lose value against several major FX crosses, continuing its trend of closely mirroring the USD's losses as investors move their money outside of North America. Most analysts anticipate that this weakening trend will hold versus the EUR, GBP and JPY in the coming weeks.</li></ul><h3>CAD has Little Room to Rise in the Immediate Future</h3><ul><li>Regarding the short-term prospects for <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>, we continue to be cautious. Our projection for the year's end is 1.35, which suggests that the CAD has little room to rise in the immediate future. We don't expect the CAD to appreciate significantly against the USD until later in 2023, when we anticipate a more favorable risk climate to create a more conducive environment for the CAD. With predictions based on spreads, commodities, volatility, and stocks settling just around the 1.35-mark, fair value models suggest that spot is now undervalued. Correlation matrices highlight strengthening correlations with the S&amp;P 500 and equites in general. The increase in CAD/commodities correlation may be an issue to watch in the coming weeks given evolving recessionary fears. The week ahead model anticipates modest downward pressure on the USD around a 1.3210/1.3530 range as a guide.</li></ul><h3>The Week Ahead</h3><ul><li>The data release schedule dramatically increases this week after a calm prior week. On Tuesday, Canada releases its September GDP and employment figures are set to be released Friday. In the US its jobs week as well, but before that, early in the week, we receive statistics on regional Fed activities, housing market activity, and consumer sentiment. The Beige Book and ADP jobs statistics will both be released on Wednesday. Data on personal income, spending, and PCE are made public on Thursday. NFP report is released on Friday. The early forecast calls for a 200k job increase. In addition to the data, a number of Fed representatives will speak this week. The FOMC blackout period starts Dec 3rd.</li></ul><h3>This Week’s Technical Trading Range</h3><ul><li>From a technical perspective, resistance is located at 1.3490/1.3500 while support is located at 1.3325/1.3300.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_21nov22_inside_e60c970af5.png" alt="wcu-21nov22-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_21nov22_inside_e60c970af5.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_21nov22_inside_e60c970af5.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_21nov22_inside_e60c970af5.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_21nov22_inside_e60c970af5.png 1000w," sizes="100vw"></p><ul><li>Last week, the CAD underperformed most of its major currency rivals, continuing a trend that has been observed over the past few weeks. Losses on crosses including <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=EUR">EUR/CAD</a>, <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=GBP">GBP/CAD</a>, and <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=JPY&amp;from=CAD">CAD/JPY</a>, appear set to increase as the CAD continues to struggle to emerge from the wider shadow cast by the USD. Although we note that Terms of Trade are emerging as a substantial influence on spot volatility over the past month, correlation matrices continue to reveal that the equity/CAD link is still the most important driver for <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a>. This is bad news for the CAD since earlier this year, when commodity indexes were skyrocketing to multi-year highs, Terms of Trade offered the CAD little to no support.</li></ul><h3>Current Risk Appetite and CAD Valuation</h3><ul><li>The softer trend in commodities that has been present since the middle of the year now seems to be having some effect on the performance of the CAD. According to spreads, risk appetite, and commodity prices, fair value models indicate that spot is currently at around current levels (1.3372), which is what we would have anticipated. The valuation model's forward-looking component predicts tight trading in the coming week within a band of 1.3210/1.3530. While USD sellers should aim for the high 1.34s, USD buyers should take advantage of USD declines to the low 1.32s. However, ranges may be drastically narrowed next week due to limited trading and low volatility.</li></ul><h3>The Week Ahead</h3><ul><li>It’s a very quiet week for data releases in North America. Wednesday is when the majority of the US data reports are to be released—including Durable Goods, Initial Claims, PMI data, and the Nov. 2nd FOMC minutes. The US Thanksgiving holiday practically guarantees that there will be very little trade. Aside from the economic reports, a few Fed officials have speaking engagements (all on Tuesday), though not all of them will concentrate on policy outlook. The only significant data release for Canada is the Tuesday update on Sep retail sales.</li></ul><h3>This Week’s USD/CAD Range</h3><ul><li>We spot resistance at 1.3490/95 and support at 1.3200/20.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_7nov22_inside_9113377abf.png" alt="wcu-7nov22-inside.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_7nov22_inside_9113377abf.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_7nov22_inside_9113377abf.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_7nov22_inside_9113377abf.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_7nov22_inside_9113377abf.png 1000w," sizes="100vw"></p><h3>US Dollar Weekly</h3><ul><li>At its November policy meeting, Fed Chair Jerome Powell signalled that while the pace of its rate hikes could moderate from here, its terminal rate could be higher than expected previously given how persistent US inflation has been. FX markets remain driven by the relative magnitude of central bank tightening, and this is supporting the USD which remains the G10 currency with the highest terminal rate. The USD is also a super liquid safe-haven that should continue to attract inflows from risk-averse investors that worry about the growth-negative impact of the continuing tightening of the US and global financial conditions. Next to the US inflation outlook, another reason for the persistent Fed hawkishness is the still-strong US labour market. In turn, any evidence in the near-term that the US labour market conditions remain tight could support the view that the Fed could continue to boost US rates, albeit at a slower pace in the coming months. Looking ahead to this week, focus will be on US CPI, consumer confidence and labor market data as well as Fed speakers. Evidence that inflation remains uncomfortably high, coupled with hawkish Fedspeak, should support the USD’s rate and yield advantage across the board. Elsewhere, the US mid-term elections are expected to lead to Congressional gridlock. The surprise would be if the Democrats managed to keep the House and Senate, which would raise the risk of more government spending.</li></ul><h3>Canadian Dollar Weekly</h3><ul><li><a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> has bounced back off the bottom of its 1.35/1.40 range after the Fed left the terminal rate question open and fully dependent on upcoming developments. This somewhat contrasts with the already slowed pace of the BoC tightening, which has in turn translated into the widest rate spreads between the US and Canada since 2019. We nonetheless doubt such a move is to have much longer legs, as the Canadian economy has so far held up relatively well as it continues to benefit from the positive terms of trade. The first GDP estimates for Q322 were in line with the BoC’s central scenario and October’s payroll report came in much stronger than expected. USD/CAD is likely to take direction from broader market themes in the week ahead.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/wcu_15may23_inside_img_a8024aa7c1.png" alt="wcu-15may23-inside-img.png" srcset="https://content.mtfxgroup.com/uploads/thumbnail_wcu_15may23_inside_img_a8024aa7c1.png 245w,https://content.mtfxgroup.com/uploads/small_wcu_15may23_inside_img_a8024aa7c1.png 500w,https://content.mtfxgroup.com/uploads/medium_wcu_15may23_inside_img_a8024aa7c1.png 750w,https://content.mtfxgroup.com/uploads/large_wcu_15may23_inside_img_a8024aa7c1.png 1000w," sizes="100vw"></p><h3>USD - US Dollar</h3><ul><li>The dollar enters a new week with a broadly unchanged set of sharply contrasting factors which saw it test the lows, first, and then rebound quite sharply in an eventful month of May. The two main opposing forces are the declining short-term US rates (as more Federal Reserve rate cuts are priced in) and the debt-ceiling impasse in Washington. The first force will be driven by data and Fedspeak today; the second by negotiations which should resume on Tuesday. Some pushback against rate cut expectations may well be on the cards this week, and while this could offer the dollar some support, markets have shown a strong tendency to price in rate cuts quite aggressively. What is really keeping the dollar afloat at this stage is the debt-ceiling impasse in Washington. The balance of risks remains tilted to the upside for the dollar.</li></ul><h3>CAD - Canadian Dollar</h3><ul><li>The US dollar initially extended last week's gains against the Canadian dollar to almost CAD 1.3570 before reversing lower. A break of CAD 1.3460-70 is needed to signal anything important from a technical perspective. Wildfires in Alberta will be an economic drag. There isn’t much in terms of domestic data this week leaving the loonie to trade on broader market themes. We expect the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> to remain relatively rangebound between 1.33 – 1.37 for the week.</li></ul><h3>EUR - Euro</h3><ul><li>The USD will probably keep driving the majority of the moves. Most of the interesting stories for the FX markets come from the US, with the debt-limit impasse in focus and the market active in speculating on the size of Fed easing later this year. The eurozone calendar is rather empty this week. It will be interesting to hear what European Central Bank speakers have to say, although they have had a limited impact on the euro. Our <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=USD&amp;from=EUR">EUR/USD</a> view for this week mirrors our USD view above, given the limited domestic drivers in the eurozone. Downside risks persist for the pair on the back of the US debt ceiling impasse, and we could see a break below 1.0800 followed by another leg lower to the 1.0700/1.0750 area.</li></ul><h3>GBP - British Pound</h3><ul><li>The Bank of England made quite clear that its next policy move in June will largely depend on two releases: wages and inflation data. This increases the range of outcomes for sterling, which will likely be ultra-sensitive to the releases. Most analysts expect some moderation in the wage growth figure after last month's jump, which may ultimately push the MPC in the direction of a hold at the June meeting. Markets are pricing in 20bp of tightening with significant downside risk for the pound.</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/WCU_23_MAY_23_inside_img_8c5d7c786b.png" alt="Weekly Currency Update 23 May 2023" srcset="https://content.mtfxgroup.com/uploads/thumbnail_WCU_23_MAY_23_inside_img_8c5d7c786b.png 245w,https://content.mtfxgroup.com/uploads/small_WCU_23_MAY_23_inside_img_8c5d7c786b.png 500w,https://content.mtfxgroup.com/uploads/medium_WCU_23_MAY_23_inside_img_8c5d7c786b.png 750w,https://content.mtfxgroup.com/uploads/large_WCU_23_MAY_23_inside_img_8c5d7c786b.png 1000w," sizes="100vw"></p><h3>USD - US Dollar</h3><ul><li>Amid cautious market sentiment, the USD is showing overall strength against major currencies. Although last night's debt ceiling talks between President Biden and Speaker McCarthy concluded positively, no clear progress was made. McCarthy emphasized the urgency of reaching a deal this week to avoid a potential US default by June 1. Treasury Sec. Yellen expressed high likelihood of cash running out by early June. Global stocks and major bond markets have weakened. Over the past few weeks, short-term interest rates in the US have been increasing, pushing the 2Y yield to its highest level since early March. This rise in yields reflects investor concerns regarding the debt ceiling issue and hawkish statements from the Federal Reserve. Both Bullard and Kashkari suggested the possibility of further rate hikes to combat inflation. The USD has been supported by these increasing yields and favorable differentials compared to other major currencies, contributing to a positive short-term trend for the dollar.</li></ul><h3>CAD - Canadian Dollar</h3><ul><li>The CAD is displaying a slight weakness against the USD in the G10, but it remains predominantly centered around the 1.35 level. Canada's economic calendar for this week is relatively quiet, with little attention being paid to today's industrial product price index and raw materials price index by market participants. The USD is currently testing resistance near CAD1.3545, which marks the upper end of its five-day range. The persistence of consumer price data indicates that the Bank of Canada (BoC) will likely need to adopt a hawkish stance at the June 6 policy decision, even if they choose to keep policy settings unchanged.</li></ul><h3>EUR - Euro</h3><ul><li>The preliminary May PMI data for the Eurozone presented a mix of results. French Services data showed a larger-than-expected decline (52.8, down from 54.6), whereas German Services demonstrated a stronger-than-expected improvement (57.8, up from 56). However, manufacturing activity in both countries, particularly Germany, was relatively weak. The overall outcome for the Eurozone indicated a generally weaker-than-anticipated performance in both the services and manufacturing sectors. Market expectations currently include a pricing in of approximately 25 basis points of tightening for the upcoming policy decision on June 15th.</li></ul><h3>GBP - British Pound</h3><ul><li>The GBP has exhibited weakness in today's trading session, mirroring the broader losses seen among major currencies against the USD. Preliminary PMI data for May came in weaker than expected, with the Manufacturing sector declining to 46.9 (down from 47.8) and slight deceleration in Service sector growth (55.1, down from 55.9). The Composite index dropped one point to 53.9 during the month, falling well below the forecast of 54.6. Despite this, it still suggests a reasonable level of momentum in the economy during the deeper parts of the second quarter, accompanied by elevated price pressures. These factors will complicate the policy decisions for the Bank of England (BoE).</li></ul>

<p><img src="https://content.mtfxgroup.com/uploads/WCU_29_MAY_23_inside_img_34546376f5.png" alt="Weekly Currency Performance of USD, AUD, NZD, JPY, CAD, CHF, GBP, EUR" srcset="https://content.mtfxgroup.com/uploads/thumbnail_WCU_29_MAY_23_inside_img_34546376f5.png 245w,https://content.mtfxgroup.com/uploads/small_WCU_29_MAY_23_inside_img_34546376f5.png 500w,https://content.mtfxgroup.com/uploads/medium_WCU_29_MAY_23_inside_img_34546376f5.png 750w,https://content.mtfxgroup.com/uploads/large_WCU_29_MAY_23_inside_img_34546376f5.png 1000w," sizes="100vw"></p><h3>USD - US Dollar</h3><ul><li>The financial markets have responded to a preliminary agreement on the debt ceiling with a sense of relief, but little else. On Sunday, President Biden and Speaker McCarthy reached a deal that prevents the United States from defaulting on its debts. Now, Congress must pass the agreement, which will require some effort to gather enough votes since both sides had to make compromises. Nevertheless, this should put an end to the ongoing saga for the time being, allowing the markets to shift their attention back to more fundamental matters such as data and monetary policy, among others. The market activity has been relatively subdued overnight, partly due to the long weekend in the United States. While US equity futures show a slight increase, European and Asian cash markets experienced mixed or somewhat lower performance. Notably, there are no significant data reports expected from North America today, suggesting a quiet trading session ahead. However, the flow of funds at the end of the month might influence trading in the next couple of days until the markets start paying closer attention to upcoming data releases, such as the US Manufacturing ISM and Non-Farm Payrolls (NFP), towards the end of the week.</li></ul><h3>CAD - Canadian Dollar</h3><ul><li>As the month comes to a close, the Canadian dollar (CAD) is showing very little movement against a generally stronger US dollar (USD). This performance places the CAD towards the weaker side of its trading range compared to the USD, and it continues to face difficulties in establishing a clear and stronger overall trend. In the short term, it is anticipated that the USD will maintain its strength, but it might encounter challenges in making substantial gains against the CAD in the upcoming week or so. Expect to see further range-bound trading, with the possibility of increased selling interest as the USD makes modest gains in the short term. Observe the <a target="_blank"  href="https://www.mtfxgroup.com/tools/currency-charts/?to=CAD&amp;from=USD">USD/CAD</a> trends.</li></ul><h3>EUR - Euro</h3><ul><li>The euro (EUR) is hovering near the lower range of 1.07, slightly above last week's market close. At its current levels, the EUR appears to have some potential attractiveness. Following a prolonged decline throughout May, its valuation has become relatively more appealing. Additionally, there is a growing consensus among European Central Bank (ECB) policymakers that the central bank has the capacity to complete at least two interest rate hikes in the upcoming policy meetings (June and July), with the possibility of a third hike in September. However, the prospect of a 4% policy rate still poses a risk for the EUR.</li></ul><h3>GBP - British Pound</h3><ul><li>During the calm overnight trading session, the British pound (GBP) has remained within a narrow range. Today, there are no data releases from the United Kingdom (UK). However, the market has been positively influenced by a series of UK data reports that have exceeded expectations, leading to heightened anticipation that the Bank of England (BoE) will need to adopt a more substantial policy tightening approach to address inflationary pressures. Market participants are currently factoring in the likelihood of approximately 100 basis points (bps) of additional interest rate hikes from the current rate of 4.50%. Furthermore, some former BoE officials have suggested over the weekend that even this anticipated level of tightening may not be sufficient to address the situation adequately.</li></ul>

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