USD / CAD hovers around September high amid falling oil prices, Canadian CPI and Fed in focus

  • USD / CAD is fading and rebounding from its intraday low around its three-month high.
  • Omicron fears and mixed signals on US inflation join the debt ceiling solution to test the bulls.
  • The Fed’s Hawkish expectations and escalating US-China struggles are fueling bullish momentum.
  • US November retail sales, Canadian CPI will offer additional indices, FOMC is key.

USD / CAD remains clear of the highest levels since September, recently resuming offers at 1.2855 as traders brace for Wednesday’s bell in Brussels.

The latest gains for the Loonie pair could be linked to weakness in Canada’s main export, WTI crude oil, as well as cautious market sentiment ahead of the US Federal Reserve (Fed) monetary policy meeting. On the contrary, mixed signals regarding US inflation and the recent decline in the US Dollar Index (DXY) challenge the bulls.

That said, WTI crude oil refreshes intraday low, near weekly low of $ 69.33, at press time. In addition, a decline in inflation expectations in the United States, measured by the 10-year breakeven inflation rate according to St. Louis Federal Reserve (FRED) data, to an 11-week low, contrasts with a record producer price index (PPI) for November to test the Fed’s hawks.

It should be noted that the news that the United States House has passed a bill to raise the debt ceiling, as well as President Joe Biden’s optimism about passing his Build Back Better plan. (BBB) ​​in the House in 2021 seem to be weighing on the DXY of late. Alternatively, concerns about the passage by the US House of the Uyghur Bill targeting China and the standoff between the US and Iran are additional geopolitical catalysts that challenge the appetite for the risk and underpin the safe haven demand of the US dollar.

While portraying market indecision, 10-year US Treasury yields do not extend yesterday’s rebound from a weekly low, while US and European equity futures show gains moderate at the latest.

Thereafter, US retail sales for November and the Canadian Consumer Price Index (CPI) for that month are likely additional catalysts, other than the Fed, that can steer USD / CAD movements in the near term. Given the hawkish hopes of the Federal Open Market Committee (FOMC), contrary to Omicron’s fears, a surprise will have greater repercussions and, therefore, the event should be traded with extreme caution.

Technical analysis

RSI overbought conditions challenge USD / CAD bulls. The Fibonacci retracement level (FIbo.) Of 61.8% from September 2020 to June 2021 adds to the upward filter, around 1.2880. Alternatively, the 10-DMA level of 1.2767 limits immediate losses before the 50% retracement near 1.2710.

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Felix J. Dixon