CAD: Holding pattern
Relentless headlines have defined the start of 2026, topped by the Department of Justice’s (DoJ) move against the Fed. So far, the market has stayed sanguine, choosing to look through the volatility. The US DXY Index has reversed early week losses, holding to 1% YTD gains against all G10 currencies. The USD/CAD has stayed in a state of consolidation during this week, currently trading near 1.3878 as it attempts to penetrate strong resistance cluster at 1.39, with the 50-day Simple Moving Average (SMA) at 1.3891 and the 100-day SMA at 1.3901 acting as immediate ceilings that have capped recent breakout attempts. While the RSI sits at 58.82, suggesting there is still room for upward momentum before reaching overbought territory, the pair remains trapped between these overhead levels and the support provided by the 200-day SMA at 1.3839. A decisive daily close above the 1.3900 psychological handle would be necessary to shift the bias from neutral to Loonie bearish; however, until the pair clears the dense cluster resistance and the surrounding moving averages, the Canadian dollar appears likely to remain defensive. Neutral sentiment in the futures market supports the consolidation phase. Focus shifts to Monday’s Canadian CPI release, where headline inflation is expected to hold firm at 2.2% YoY. A print in this range would likely cement the Bank of Canada’s ‘holding bias’.
On the macro front, despite the “bearish sweep” of recent Canadian data—headlined by the sharp December contraction in Existing Home Sales (-2.7% vs. -1.8% exp.) and significant November misses in Wholesale Sales (-1.8% vs. 0.1% exp.) and Manufacturing (-1.2%)—there has been no meaningful dovish repricing for the Bank of Canada’s (BoC) January 28 meeting. Current Overnight Index Swaps (OIS) pricing reflects a negligible 4.1% probability of a 25bps cut, with an implied rate of 2.239 that remains essentially locked to the current 2.25% policy target. This disconnect suggests that the market is looking past the immediate industrial and housing deterioration, remaining anchored instead to the BoC’s December signal that rates are at “about the right level” to manage sticky core inflation and looming trade uncertainty. Ultimately, while the domestic growth data is deteriorating, it has yet to shift the needle on front-end expectations, which continue to price a high-conviction pause for the start of 2026.
GBP: The puzzle of a positive day that didn’t deliver
Yesterday delivered one of those market head‑scratchers: sterling weakened broadly despite a backdrop that looked tailor‑made for GBP strength. On paper, Thursday should have been a solid day for sterling — in reality, the UK currency suffered its biggest daily loss in several weeks versus major peers.
The underlying conditions looked firmly GBP‑positive. Risk sentiment improved: equities were higher, volatility gauges like MOVE and VIX drifted lower. Oil prices sank over 4%, which would typically support GBP by easing the UK’s energy‑import burden. Even gilt yields rose as markets trimmed BoE easing expectations after a stronger‑than‑expected UK GDP report. Yet the pound still underperformed — and that’s the tell.
As we’ve highlighted this week, sterling is now reacting more aggressively to USD swings than other major peers, a dynamic that has steadily intensified over recent months. And that relative underperformance naturally feeds into the crosses. It’s a flow‑driven dynamic rather than a fundamental one.
GBP/USD posted its biggest daily fall since November. That said, when -0.4% counts as a standout move, you know FX volatility is running on empty. In the near term, any further USD strength will naturally drag GBP/USD lower: the 100‑day moving average at $1.3366 is acting as key support, and a break below it would open the door to a move toward $1.33. All of this sets the stage for a data‑packed week ahead for the UK, where fresh catalysts could finally jolt sterling out of its low‑volatility drift.
MXN: Rally resumed
The Mexican Peso is staging a surprising technical breakout, slicing through key psychological support levels near the 17.60 handle to mark its most significant weekly advance since November last year. This move has effectively invalidated several bearish divergence signals from late 2025, reclaiming momentum with enough conviction to suggest the 50-day moving average, a level it has respected for months, is no longer a ceiling but a launchpad. With USD/MXN now trading at its lowest levels since July 2024, the path of least resistance appears skewed toward further appreciation. However, sustaining double-digit returns remains a high bar for Latin American currencies as they contend with the gravity of a firming Greenback. Should 2026 see even a modest recovery in the US Dollar Index, the Mexican Peso’s yield advantage will likely struggle to drive further spot appreciation.
On the macro front, the mixed batch of October economic data released yesterday presents a conflicting picture that likely stalls any dovish repricing for Banxico’s upcoming February meeting, shifting the market consensus toward a pause rather than a consecutive cut. While the significant miss in Gross Fixed Investment (-5.5% YoY vs -3.9% exp.) confirms the persistent stagnation of Mexico’s industrial and productive sectors, the upside surprise in Private Consumption (4.2% YoY vs 4.0% exp. and 3.6% prior) provides a hawkish offset for a central bank currently fixated on sticky core services inflation. Because Banxico has signaled a focus on domestic demand resilience and potential “one-off” inflationary shocks in early 2026, this consumption “beat” gives the Governing Board justification to maintain the overnight rate at 7.00% to ensure inflation convergence. Consequently, these figures prevent a dovish shift in the TIIE swap curve, as the strength in consumer spending effectively neutralizes the disinflationary signals from the investment slump, reinforcing a “cautious and data-dependent” terminal rate outlook.
Market snapshot
Table: Currency trends, trading ranges & technical indicators
Key global risk events
Calendar: January 12-16
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
