The U.S. dollar has strengthened thanks to better-than-expected ADP employment numbers and a 3.0% annual growth in Q2 GDP. This growth is attributed to favorable changes in trade and inventories, although final sales to private domestic buyers only increased by 1.2%. ADP reported 104,000 private payrolls, exceeding the predicted 75,000. However, differences from the BLS nonfarm payrolls affect predictability. In currency news, EURUSD has dipped below several swing points, aiming next for the 50% midpoint of the move from May to July’s high. USDJPY has hit new highs, with the next target at the 50% midpoint of recent high-low movements. The Bank of Canada (BoC) is likely to maintain its interest rate at 2.75% amid uncertainties about U.S. tariffs and potential trade agreements.

BoC Interest Rate Movements

The BoC rate is in the neutral range of 2.25-3.25%, with the market estimating a 56% chance of a rate cut by the end of the year. Despite solid labor market data, risks lean toward the downside due to trade uncertainties. The USDCAD has been rising, surpassing the 50% midpoint and other important technical levels, with future targets near higher retracement levels and moving averages. Given the strong U.S. data released, the dollar is likely to continue rising against major currencies. Although the Q2 GDP figure of 3.0% appears strong, the underlying weakness in consumer demand—private sales only up by 1.2%—suggests that this growth may not be sustainable. The ADP payroll number may have exceeded expectations, but it often diverges from the official BLS jobs report, which will be released later this week. Currently, the technical breakdown in EURUSD below the 1.1500 level is significant. With the price now targeting the 1.1447 midpoint, traders should consider strategies that could profit from further declines or potential caps on any rebounds. Selling at rallies near the 1.1500 resistance or purchasing short-dated put options could be strategies to test the 100-day moving average. Similarly, USDJPY has moved above the 148.72 resistance area, aiming for the pivotal 149.036 level. This level has halted price increases twice this month, so a sustained move above it is necessary to confirm bullish momentum. Buying call options may provide a leveraged opportunity for a breakout toward the 200-day moving average at 149.53.

Trade Talks and Market Volatility

In the coming weeks, the focus will be on the Bank of Canada and the ongoing U.S. trade discussions. The BoC is expected to keep its rate steady at 2.75%, balancing strong domestic data against the risk of U.S. tariffs. Recent data, including June’s core inflation at 2.8% and a resilient labor market, supports this decision. However, the August 1st deadline for a new trade agreement is the most significant catalyst ahead. Prime Minister Carney has indicated that a deal is unlikely by then, and the market is already pricing in a 56% chance of a BoC rate cut by year-end, highlighting traders’ anxieties. We recall the market volatility during the 2018-2019 trade disputes over steel and aluminum, and we expect similar conditions now. This uncertainty makes USDCAD the most intriguing currency pair for derivatives trading. The pair has surpassed the 1.3800 level and is now targeting key resistance around the 100-day moving average at 1.38277. The risk of trade talks failing and tariffs rising supports a bullish outlook for the pair. As the deadline approaches, implied volatility in USDCAD options is likely to rise sharply. Buying call options now, while they may be more affordable, could effectively prepare you for a significant upward movement if the trade situation worsens. This strategy limits your risk while giving you exposure to a potentially explosive price change. Create your live VT Markets account and start trading now.

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