USD/CAD retreats more than 200 pips from two-year highs

• US dollar reverses sharply across the board, DXY turns negative.
• US CPI comes in above expectations, triggering volatility.
• USD/CAD sharp reversal, if sustainable, could suggest a top.

The USD/CAD jumped dramatically after US CPI data and then pulled back even with more drama, falling almost 250 pips from the peak. The pair hit the highest level in two years near 1.4000 and as of writing, it is hovering around 1.3750.

Reversal all around

The US September Consumer Price Index came in above expectations and triggered a decline in Wall Street, in Treasuries and a rally of the US dollar. All those moves have been reversed. The Dow Jones is up by 1.73% or 505 points, after a 900-point reversal.

The outcome of the US CPI warrants another 75 basis points rate hike from the Fed at the November meeting. Some analysts could even mention the odds of an even larger hike, but it seems unlikely. The news is that inflation is not pulling back in the US.

The reversal of the US dollar across the board could point to an interim top. In the case of USD/CAD, the move takes place after approaching the psychological 1.40 zone. If the pair manages to rise back above 1.3850 a test of 1.40 would be back on the cards.

On Friday, during the Asian session Chinese CPI data is due. Later, is the turn of US September Retail Sales and Canadian Manufacturing Sales.

Technical levels