USD/CAD turns negative and breaks below 1.2800

• US dollar posts mixed results as the FOMC meeting begins.
• Loonie turns positive versus US dollar, holds in negative against AUD and NZD.
• USD/CAD: Bullish bias but limited by 1.2900.

The USD/CAD pulled back more than 50 pips from the daily highs and turned negative. The pair hit earlier on Wednesday a five-day high at  1.2871, and as of writing, it trades at 1.2799, the fresh daily low.

The retreat occurred amid an improvement in market sentiment and even as crude oil prices extended losses. The WTI barrel is falling almost 9%.

Economic data from the US showed an increase in the Producer Price Index to 10% (annual), the highest level in decades and a sharp decline in the Empire Manufacturing Index for February. The numbers had little impact on the greenback as market participants focused on the two-day meeting of the Federal Reserve and the war in Ukraine.

The FOMC is expected to raise the key interest rate for the first time since 2018, in a complex environment with high inflation, supply disruptions, a war in Ukraine and soaring crude oil prices. The tone of the statement and Chairman Powell's words will likely trigger volatility across the financial markets. Also, on Wednesday, inflation data from Canada is due.

The 1.2900 area still holds the key

A weekly close above 1.2900 should trigger more gains over the medium term, favoring a rally above 1.3000. The same chart shows a relevant support around 1.2700, the 20-week Simple Moving average, a consolidation below should weaken the dollar, exposing the next supports at 1.2580 and 1.2445.

Technical levels