USD/CAD: 50 DMA guards the downside ahead of Canadian inflation

• A pause in the US dollar sell-off offers some respite to USD/CAD.
• Oil price weakness helps alleviate the downside pressure.
• 50 DMA challenges bullish commitments, Canadian inflation eyed.

USD/CAD is licking its wounds while defending 1.2850, sitting at the lowest level in two weeks, as the US dollar bears take a breather after the recent downward spiral.

The sentiment remains upbeat amid easing recession fears, in the face of Russia’s Nord Stream 1 re-opening at reduced levels and ebbing 100 bps July Fed rate hike bets. Meanwhile, Netflix Inc. reported a smaller-than-expected subscriber loss, which also enhance the market mood.

Meanwhile, the renewed pullback in WTI prices after the previous upsurge also helps cushion the downside in the USD/CAD pair. The black gold slipped in Asian trading after the API crude stockpiles jumped by 1.86 million barrels vs. +1.40 million barrels expected.

Looking ahead, the US dollar price action and the Canadian inflation data will emerge as the key drivers for the major. The Canadian Consumer Price Index (CPI) is seen higher at 8.4% YoY in June vs. 7.7% expected. The annualized core CPI is likely to surge 6.7% in June vs. 6.1% reported previously. Note that the Bank of Canada (BOC) hiked the key rates by a surprise 100 bps to 2.5% at its policy meeting last week to fight raging inflation.

From a short-term technical perspective, USD/CAD is challenging the critical horizontal 50-Daily Moving Average (DMA) at 1.28558, as of writing.

Daily closing below the latter is needed to resume the bearish momentum from above 1.3200 levels. The 14-day Relative Strength Index (RSI) is flatlined but remains below the 50.00 level, suggesting that the downside bias looks well in place in the near term.

A breach of the key support could trigger a sharp drop towards the mildly bullish 100 DMA at 1.2771. Ahead of that, the 1.2800 round number could be put to test.  

USD/CAD: Daily chart

On the other side, bulls need to recapture the 1.2900 barrier to initiate any meaningful recovery. Up next, the falling 21 DMA at 1.2950 will offer stiff resistance.

A sustained break above the latter is critical to unleashing the additional recovery towards the 1.3000 mark and beyond.

USD/CAD: Additional levels to consider