CANADIAN DOLLAR FUNDAMENTAL BACKDROP The Canadian dollar has enjoyed marginal gains against the USD over the first half of 2023 but recent weakness has brought the pair to a key inflection point. The greenback has gained favor after a more hawkish rhetoric from the Federal Reserve which was reiterated in yesterday’s FOMC minutes. The majority of participants eluded to further monetary policy tightening at some stage this year but with fundamental data slowing, data dependency will be more crucial than ever particularly in the case of inflation and jobs data. Later today, the precursor to the US labor market will be released through the ADP and jobless claims release. Although history shows these figures have not been reliable as a gauge for the Non-Farm Payroll (NFP) print but will regardless provide some short-term volatility. The focal point for today will stem from the US ISM services PMI release due to the US being a primarily services driven economy. The measure has been on the decline of recent but forecasts do point to a slight improvement that could give the US dollar some support. Canadian PMI’s are also scheduled but will likely be overshadowed by the US print. Daily USD/CAD price action places the pair within a rising wedge chart formation (dashed black line) with prices close to the apex point in line with the 1.3300 psychological level. With this in mind, a break below wedge support will be the natural course of action opening up subsequent support zones thereafter. A confirmation close above wedge resistance will invalidate the bearish pattern giving bulls a clear run up towards the 50-day moving average (yellow).IG CLIENT SENTIMENT DATA: BEARISH IGCS shows retail traders are currently LONG on USD/CAD , with 68% of traders currently holding long positions (as of this writing). At Daily FX we typically take a contrarian view to crowd sentiment resulting in a short-term downside disposition.
