- The dovish tone of the November Federal Reserve Minutes weighed on the US dollar and strengthened the Canadian dollar.
- The US S&P global PMIs fell into recession territory, meaning the US economy is slowing rapidly.
- USD/CAD Price Analysis: Trending down, with an eye on the head and shoulders target at 1.3030.
The Canadian dollar (CAD) continued its advance against the US dollar (USD), courtesy of several factors, mainly the minutes of the US Federal Reserve (Fed), perceived as slightly dovish, with the board of directors willing to slow the rate of increases in rates. This, along with a gloomy economic outlook in the United States (US) with the PMIs entering recession territory, weighed on the USD. At the time of writing, USD/CAD is trading at 1.3338, down 0.17% from its opening price.
Dollar Remains Weak as Fed Officials Willing to Moderate Rallies
Sentiment remains upbeat amid low volume trading conditions in observance of the US Thanksgiving holiday. On Wednesday, the Federal Reserve’s Open Market Committee (FOMC) released the November minutes, stating that “a substantial majority of participants judged that a slowdown in the rate of increase would likely soon be appropriate.” “, giving the green light to investors looking for riskier assets. However, traders should be aware that policy makers have expressed “uncertainty” about what level rates should reach and that it will depend on the data.
The same minutes reported that recessionary risks have risen, with a 50/50 chance the US economy will enter a recession, as officials acknowledged that growth risks are skewed to the downside.
Apart from this, a series of mixed US economic data on Wednesday saw the S&P Global Manufacturing, Services and Composite Indices for November enter recessionary territory. Later, the University of Michigan (UOM) Consumer Sentiment remained positive at 56.9, below the preliminary reading but above estimates. Inflation expectations were largely unchanged.
Earlier, initial jobless claims in the past week beat estimates, showing the job market is easing. At the same time, US durable goods orders topped forecasts, signaling consumer resilience in a period of high inflation and rising borrowing costs.
Meanwhile, the Dollar Index (DXY), a gauge of the value of the dollar against a basket of pairs, is down 0.23% to 105.857, closing the 200-day EMA at 105.72. If the 200 day EMA is broken, the test of the 100,000 figure will be aggravated.
Shifting our focus to Canada, Bank of Canada (BoC) Governor Tiff Macklem appeared in Parliament, testifying on the October Monetary Policy Report. Macklem did not comment on anything new. He stressed the need to balance the risk of over- and under-adjustment. He said they expect rates to continue to rise, adding that inflation in Canada remains high and widening, reflecting rising prices for goods and services.
USD/CAD Price Analysis: Technical Perspective
USD/CAD resumed its downtrend after testing the head and shoulders neckline on Monday, although the failure to break it kept the chart pattern in play. The fallout from the November Fed minutes release left USD/CAD trading below 1.3400. However, a lack of liquidity due to the US holidays kept USD/CAD trading sideways. However, the path of least resistance for USD/CAD is to the downside.
Therefore, the first support for USD/CAD is 1.3300. A break below will expose the 100 day EMA at 1.3264, followed by 1.3200.
Source: Fx Street
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