USD/CAD advances firmly towards 1.2400 amid risk-off market sentiment

• USD/CAD briefly pierced 1.2400, reaching a daily high at 1.2408
• Concerns about inflation, central bank tightening, and US CEOs commenting on supply shortages and elevated prices dented market sentiment.
• US Core PCE remains steady at 3.6%, though lower than expected.

The USD/CAD climbs during the New York session, up 0.41%, trading at 1.2396 at the time of writing. Broad US dollar strength across the board keeps the Loonie under pressure. Also, weak Apple and Amazon Q3 corporate earnings and both companies CEO commenting about supply shortages and higher costs dented the market sentiment 

Furthermore, concerns about inflation and central bank tightening conditions added to the abovementioned factors.

Earlier in the day, the Loonie appreciated against the greenback, maintaining the pair around 1.2329, near the lows of Thursday. However, month-end flows, and US Dollar demand, weakened the oil-linked Canadian dollar.

Also, crude oil prices, which boost or dents the CAD prospects, are falling, with the Western Texas Intermediate (WTI) down 0.23%, trading at $82.31 on Friday.

The US Dollar Index, which tracks the buck's performance against a basket of its peers, rallies almost 1%, sitting at 94.26, despite falling US bond yields, as the 10-year benchmark note drops one basis point, down to 1.566%, at press time.

US Core Personal Consumption Expenditure, Fed's favorite measure of inflation, steady at 3.6%

In the Canadian economic docket, Statistics of Canada released the Gross Domestic Product for August, which expanded by 0.4%, lower than the 0.7% estimated but better than July's -0.1% reading.

According to RBC Capital market in a note to clients, the disappointment of the GDP report should not derail the Bank of Canada hawkishness. Further noted, "The softer print on Q3 shouldn't derail the BoC's newfound hawkishness — the Bank's flexible treatment of the output gap still leaves April as the most likely point for lift-off. But nor do we want to give the impression that economic data is totally irrelevant here. If the economy fails to rebound in Q4 the Bank's shift in forward guidance may start to look ill-advised."

The Federal Reserve's favorite measure of inflation, the Core PCE for September, remained unchanged at 3.6% on a yearly basis, a tick lower than foreseen by economists and in line with the previous month. Moreover, in its final reading, the University of Michigan Consumer Sentiment Index drops to 71.7 in October, against 71.4 expected.

USD/CAD Price Forecast: Technical outlook

Daily chart

The USD/CAD pair is testing the top of a bearish flag, around 1.2400, which also confluences with a downslope trendline traveling from September 20 high towards September 29 high that the pair is testing at press time. 

Nevertheless, to resume the downward trend, as confirmed by the daily moving averages (DMA's) above the spot price and the Relative Strength Index (RSI) at 41, it will need a daily close below the bottom of the bearish flag.

Therefore, due to US dollar strength at Friday's session, it seems the pair is under a mild correction before resuming the downward trend, as signaled by the moving averages and the RSI.