USD/CAD is trading in choppy action ahead of the FOMC decision, sitting on major support as markets wait for clues from the press conference.
- Direction will hinge on whether the Fed signals steady rate cuts or a more cautious, data-dependent stance.
During the trading session on Wednesday, we've seen a little bit of noise in this pair, which is more chop than anything else, which makes sense because we have the Federal Reserve interest rate decision late in the day, but we did have a Bank of Canada interest rate decision, and it went pretty much as expected.
Really, Canada might be somewhat done with its rate-cutting expectations. We'll just have to wait and see. But as things look right now, we have to ask questions about what the Fed looks like going forward. Unfortunately, a lot of retail traders will get burned by the idea of the Federal Reserve cutting rates, thinking that the dollar is going to fall. But quite frankly, the markets know this. A simple look at the CMEs FedWatch tool tells you that it's an extraordinarily high off the top of my head, I want to say about a 90% chance. So, we already know that it's going to be a 25 basis point rate cut.
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Key Support and Fed Outlook
The question will be, what does the press conference sound like? Does it sound like the Federal Reserve is on autopilot to continue cutting? Because if that's the case, then you probably see the Canadian dollar pick up quite a bit of strength from here. And a breakdown below the 1.3733 level opens up increased selling. We are at a previous downtrend line that has offered support so far. So if Jerome Powell ends up sounding a lot like somebody who isn't sure about rate cuts, I anticipate that this pair could go looking back to the 50-day EMA, even maybe to 1.40. If he uses the phrase data dependent and suggests that nothing's written in stone, the markets aren't going to like that, and we will rally.
Nonetheless, this is a market when you zoom out, you can see we are sitting on top of a massive consolidation area right around where we are. So, a lot of questions to be answered here. It'll be interesting for the next couple of weeks. But right now, we're sitting right on a ton of support. So, he has to pretty much convince the market that the Fed is going to cut multiple meetings in a row, I think, before this thing really breaks down. So don't watch the interest rate decision. Watch the conference and the reaction afterwards.
There's your big tell.
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