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USD/CAD refreshes three-day highs but retreats under 1.2700 post-US inflation report

  • The USD/CAD appears to fade the US inflation report, which came higher than estimated.
  • US Treasury yields rise, led by the 10-year benchmark note at 2%.
  • USD/CAD Technical Outlook: Neutral biased, confined to the 1.2650-1.2790 range.

The USD/CAD pares Wednesday’s losses as the US inflation in January grinds higher, reaching a 40-year high, while the US central bank prepares to begin its tightening cycle. At the time of writing, the USD/CAD is trading at 1.2693.

On Thursday, the Department of Labor reported that January’s inflation rose by 7.5%, higher than the 7.3% estimated annually based. Excluding volatile items like energy and food, also called Core Consume Price Index (CPI), broke the 6% threshold, higher than the 5.9% expected, the most witnessed since 1982.

Market’s reaction

The USD/CAD initial reaction was upwards, from 1.2670s region to 1.2714, though stalled around February0s 9 daily high. Meanwhile, the US 10-year Treasury yield reached the 2% mark in the bond market, rallying more than five basis points after the US inflation report.

An absent Canadian economic docket left USD/CAD traders adrift to US macroeconomic data. On the US front, alongside the inflation figures, Initial Jobless Claims for the week ending on February 5, increased 223K, lower than the 230K estimated by economists, while Continuing Jobless Claims stayed unchanged at 1621K compared to the revision of the previous week.

USD/CAD Price Forecast: Technical outlook

The USD/CAD is confined to the 1.2650-1.2790 area. The 50-day moving average (DMA) at 1.2703 above the spot price is resistance, capping moves since Monday, while the 100 and the 200-DMA at 1,2616 and 1.2519 are almost “horizontal” well below the exchange rate.

That said, the USD/cad first resistance would be the aforementioned 50-DMA. Breach of the latter would expose the January 28 cycle high at 1.2796. Once that is broken, the USD/CAD will have a clear path towards December’s 2021 swing high at 1.2963.

 

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