Forex Friday DXY and USDCAD in a nutshell

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Welcome to Forex Friday, a weekly report where we discuss selected currency themes primarily from a macro perspective, but we also add a dash of technical analysis here and there. In this week‘s edition, we discuss the dollar and its impressive rally and the Canadian dollar.

The dollar at its highest since 2002

There was a brief selloff in the dollar mid-week when Fed Chairman Jay Powell started speaking at the FOMC press conference. Powell confirmed that “75 basis points is not something the FOMC is actively considering,” but that fell on deaf ears as the greenback rallied higher on Thursday, before consolidating. on the back of a mixed US jobs report on Friday. Judging by the reaction of the dollar, it does not appear that the markets are taking Powell seriously, as my colleague Joe Perry commented in his post-FOMC reaction. Investors are now eagerly awaiting the US CPI release next week. In March, consumer prices hit a new multi-decade high of 8.5%, compared to 7.9% year-on-year recorded in February.

Since the start of the year, the greenback has appreciated by more than 8% against a basket of foreign currencies. It performed particularly well against the yen, rising some 13% to hit repeat multi-decade highs against the Japanese currency. European currencies also suffered at the expense of the global reserve currency. The pound, euro and franc all fell by around 7-8% each.

The greenback has been in a strong uptrend since the start of 2021. At just over 104.00, the Dollar Index reached its best level since 2002 this week, after breaking through 2020 highs (~103.00) and 2017 (~103.80), before slackening. back amid pessimistic foreign exchange profit taking and bargain hunting. The king of FX performed exceptionally well against currencies where the central bank is still relatively more accommodative, such as the yen, yuan, euro and franc.

So why has the dollar risen so much?

In short, because of a strong economic rebound after the pandemic and, more specifically, galloping inflation. As price pressures have grown rapidly over the past year or so, the Fed (and other central banks) has rushed to tighten ultra-loose monetary policy, to avoid letting inflation get completely out of control. To a large extent, the FOMC missed this target, as consumer prices hit 8.5%, their highest level since the early 1980s. There is a risk that prices will rise again before descending.

Expectations that interest rates will continue to rise in the United States have driven the dollar higher against currencies, where the central bank is expected to keep interest rates comparatively lower. In other words, investors piled on the dollar to earn higher interest.

USD/CAD tests key resistance

One particular pair to watch is USD/CAD, which hasn’t moved much as rising oil prices have helped support the Canadian dollar. But Friday’s markedly weaker jobs report from the North American nation saw the CAD drop noticeably. Canada’s unemployment rate fell to 5.2%, a modern low, but employment rose only 15,000 from the 40,000 expected.

Will we see a break above 1.2900?

USDCAD

Over the coming week, the economic calendar is very quiet, although we still have to wait for US CPI, German ZEW, UK GDP and Chinese trade data. But keep a close eye on Fed speakers, the direction of stock markets, and risk appetite in general, which could provide fresh energy to FX.

Source for all charts used in this article: StoneX and TradingView.com

This content will only appear on City Index websites!

Welcome to Forex Friday, a weekly report where we discuss selected currency themes primarily from a macro perspective, but we also add a dash of technical analysis here and there. In this week’s edition, we discuss the dollar and its impressive rally and the Canadian dollar.

The dollar at its highest since 2002

There was a brief selloff in the dollar mid-week when Fed Chairman Jay Powell started speaking at the FOMC press conference. Powell confirmed that “75 basis points is not something the FOMC is actively considering,” but that fell on deaf ears as the greenback rallied higher on Thursday, before consolidating. on the back of a mixed US jobs report on Friday. Judging by the reaction of the dollar, it does not appear that the markets are taking Powell seriously, as my colleague Joe Perry commented in his post-FOMC reaction. Investors are now eagerly awaiting the US CPI release next week. In March, consumer prices hit a new multi-decade high of 8.5%, compared to 7.9% year-on-year recorded in February.

Since the start of the year, the greenback has appreciated by more than 8% against a basket of foreign currencies. It performed particularly well against the yen, rising some 13% to hit repeat multi-decade highs against the Japanese currency. European currencies also suffered at the expense of the global reserve currency. The pound, euro and franc all fell by around 7-8% each.

The greenback has been in a strong uptrend since the start of 2021. At just over 104.00, the Dollar Index reached its best level since 2002 this week, after breaking through 2020 highs (~103.00) and 2017 (~103.80), before slackening. back amid pessimistic foreign exchange profit taking and bargain hunting. The king of FX performed exceptionally well against currencies where the central bank is still relatively more accommodative, such as the yen, yuan, euro and franc.

dollar

So why has the dollar risen so much?

In short, because of a strong economic rebound after the pandemic and, more specifically, galloping inflation. As price pressures have grown rapidly over the past year or so, the Fed (and other central banks) has rushed to tighten ultra-loose monetary policy, to avoid letting inflation get completely out of control. To a large extent, the FOMC missed this target, as consumer prices hit 8.5%, their highest level since the early 1980s. There is a risk that prices will rise again before descending.

Expectations that interest rates will continue to rise in the United States have driven the dollar higher against currencies, where the central bank is expected to keep interest rates comparatively lower. In other words, investors piled on the dollar to earn higher interest.

USD/CAD tests key resistance

One particular pair to watch is USD/CAD, which hasn’t moved much as rising oil prices have helped support the Canadian dollar. But Friday’s markedly weaker jobs report from the North American nation saw the CAD drop noticeably. Canada’s unemployment rate fell to 5.2%, a modern low, but employment rose only 15,000 from the 40,000 expected.

Will we see a break above 1.2900?

USDCAD chart

Over the coming week, the economic calendar is very quiet, although we still have to wait for US CPI, German ZEW, UK GDP and Chinese trade data. But keep a close eye on Fed speakers, the direction of stock markets, and risk appetite in general, which could provide fresh energy to FX.

Source for all charts used in this article: StoneX and TradingView.com

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