USD/CAD remains confined in a range around mid-1.2300s, US/Canadian data awaited

• USD/CAD extended its consolidative price action through the early European session.
• A combination of factors revived the USD demand and acted as a tailwind for the pair.
• A modest downtick in oil prices undermined the loonie and further extended support.

The USD/CAD pair quickly recovered around 20 pips from daily lows touched in the last hour and was last seen trading with modest intraday gains, around mid-1.2300s.

The pair continued with its struggle to gain any meaningful traction and continued with its two-way price move in a narrow trading band for the second successive day on Friday. A more hawkish Bank of Canada acted as a tailwind for the domestic currency and capped the upside for the USD/CAD pair. That said, a combination of factors extended some support to the major and helped limit losses, at least for the time being.

Crude oil prices failed to capitalize on the overnight goodish rebound from two-week lows, instead met with a fresh supply and undermined the commodity-linked loonie. The intraday downtick in the black gold followed reports that OPEC and its allies (OPEC+) cut 2022 oil demand growth outlook slightly to 5.7 million barrels per day. Apart from this, a solid US dollar rebound from one-month lows extended some support to the USD/CAD pair.

Worries about a faster-than-expected rise in inflation, along with signs of a global economic slowdown have raised fears about the risk of stagflation. The market concerns were further fueled by Thursday's dismal US GDP report, which showed that the growth in the world's largest economy decelerated sharply during the third quarter of 2021. This, in turn, weighed on investors' sentiment and revived demand for the safe-haven greenback.

The USD drew additional support from a strong follow-through rally in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond shot back above the 1.60% threshold amid expectations for an early policy tightening by the Fed. The markets have been pricing in the possibility of a potential interest rate hike in 2022 amid worries about a faster-than-expected rise in inflationary pressures.

Hence, the market focus will remain glued to the release of the US Core PCE Price Index, which will set the tone heading into next week's FOMC meeting. Friday's economic docket also features the release of monthly Canadian GDP print, which, along with oil price dynamics, should produce some trading opportunities around the USD/CAD pair.

Technical levels to watch