USD/CAD Hovers Above Key Support Levels

On Monday, the dollar was nearly unchanged versus the Loonie, but activity was very light as most markets in the United States were closed due to the Martin Luther King holiday. The 2-year and 10-year U.S. Treasury yields remained at elevated levels. Market participants are torn between elevated levels of inflation and softer than expected economic data, which might result from higher inflation levels. The PBOC allowed their one-year lending rate to decline. In the U.S. interest rate traders are now pricing in 100-basis points of rate hikes.

Technical Analysis

The USD/CAD was nearly unchanged. Support is seen near the 200-day moving average at 1.25. Resistance is seen near the 10-day moving average at 1.2616. The 10-day moving average crossed below the 50-day moving average, which means a short-term downtrend is in place. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. The exchange rate is oversold as the fast stochastic is printing a reading of 17, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

China Allows Rates to Slide

The PBOC allowed the one-year lending facility rate to ease by 10 basis points to 2.85%. It is the first reduction since April 2020. The move follows mixed data which saw a beat on GDP, but softer than expected Retail Sales and Fixed-Asset Investment.