USD/CAD is moving in on the psychological 1.2500 level

• USD/CAD bulls on recess amid soaring US CPI, highest since 1990.
• WTI weakness, stronger US dollar frown upon the pair’s health. 
• The loonie scours for impetus from external factors amid light economic activity.

USD/CAD weakened to trade around 1.2540, near to levels not seen since October 11 amid a stronger US dollar and lower oil prices. DXY, an index that measures the greenback vs a basket of major rivals, gained ground towards a one-year high after data on US consumer inflation showed that prices soared 6.2% in October. The US Consumer Price Index came in above market expectations and was the highest annual increase since 1990. The outcome has reinforced market bets that a rate hike in the US might come earlier.

US CPI spiked, Inflation concern broadened

Consumer prices in the US rose 0.9% MoM in October, up 6.2% YoY, ahead of consensus expectations of a 0.6% MoM (5.9% YoY) lift. Core inflation (which excludes food and energy) was up 0.6% m/m, or 4.6% YoY. ''There is evidence of upward pressure in underlying inflation as price rises spread beyond factors related to the lifting of COVID restrictions,'' analysts at ANZ Bank explained.

''The ‘transitory’ inflation argument is coming under increasing scrutiny, and the risk of a policy error on inflation has the potential to unsettle risk appetite. Since last week’s FOMC meeting, Fed speakers have argued that the risks to inflation lie to the topside,'' the analysts at ANZ Bank added. 

WTI and Canadian jobs market in focus

Meanwhile, one of Canada’s major exports, WTI crude, snapped a three-day rally to trade down below $81.50 a barrel dragged by loosening inventory levels and a stronger US dollar.

The US also increased pressure on oil markets, analysts at ANZ Bank noted, with President Biden asking his economic advisors to explore ways to lower energy prices. ''There is growing speculation that the US might coordinate releases of inventory with other nations, such as Japan. Signs of weaker demand also weighed on sentiment.''

Besides, traders will keep in mind that last week's key domestic data showed that Canada added 312K jobs in October. This was less than 50K expected. However, it marked the fifth consecutive month with job creation as gains in the private sector continued to offset the poor self-employment performance. 

USD/CAD technical levels

According to the daily chart, the loonie is struggling on the upside with resistance at 1.2540 level, where lie both its 100 and 50-day Simple Moving Averages (SMAs). The second barrier to the upside is 1.2739, it’s one month high. If it breaks, the next obstacle that can be tested is 1.2600.

The support level for the pair is at 200-day SMA or 1.2475. The following support for the pair is 21-day SMA 1.2397. The final support is seen at 1.2288 (one month low). 

USD/CAD daily chart