USD/CAD retreats after soft CPI data from the USD, holds the 100-day SMA

• USD/CAD trades with losses near 1.3400 as bulls battle to defend the 100-day SMA at 1.3390.
• Core CPI from the US dropped to 4.7% in July, and Jobless Claims picked up in August.
• Lower yields and dovish bets weakened the USD. Eyes on Fed speakers.

On Thursday, the USD/CAD retreated towards the 1.3400 area but still holds above the critical support of the 100-day Simple Moving Average (SMA) of 1.3390. On the USD side, soft inflation data made the Greenback retreat while the CAD suffered Oil prices correction overbought conditions.

The US Bureau of Labor Statistics revealed that the Consumer Price Index (CPI) from the US from July advanced by 0.2% MoM, just as expected, and the yearly measure dropped to 3.2% YoY vs the 3.3% expected. The Core measure also advanced 0.2% in the same month as scheduled, with the YoY measure dropping by 4.7%, lower than the 4.8% expected. In addition, Jobless Claims for the first week of August increased to 248,000, higher than the expected 230,000 and the previous figure of 227,000 and gave another signal of the labour market cooling off.

As a reaction, the US bond yields have weakened across the curve. The 10-year bond yield fell to 4.01%, while the 2-year yield sits at 4.77% and the 5-year yielding 4.12%. Downward movements reflect dovish bets on the Federal Reserve (Fed), and according to the CME FedWatch tool, markets are confident that the Fed won’t hike either in September or in November. However, incoming data will be the ones which shape the next monetary policy decisions.

USD/CAD Levels to watch

The daily chart shows exhaustion for the USD/CAD’s bulls. The Relative Strength Index (RSI) displays a negative slope but stands above its midline, while the Moving Average Convergence (MACD) prints decreasing green bars. On the bigger picture, the pair is above the 20 and 100-day Simple Moving Averages (SMA) but below the 200-day SMA, highlighting the continued dominance of bulls in the broader perspective. However, buyers must soon overcome the 200-day SMA to confirm an upward trajectory.

Support levels: 1.3380 (100-day SMA),1.3350, 1.3300.

Resistance levels: 1.3450, 1.3500 (200-day SMA), 1.3550.

USD/CAD Daily chart