USD/CAD pullback eyes 1.2700 on upbeat oil prices, US PCE Inflation in focus

• USD/CAD snaps two-day uptrend, eases from the highest level in three weeks.
• Oil prices stay firmer amid Russia-Ukraine tussles, USD pullback.
• Markets brace for Fed’s preferred inflation gauge as rate hikes are in talks.

USD/CAD fades bounce off intraday low during the first negative daily performance in three amid early Friday in Europe.

Alike other majors, the Loonie pair also adhered to the broad US dollar gains post-Fed during the last two days, refreshing the highest levels in three weeks. However, escalating tensions surrounding the Russia-Ukraine geopolitical tension propel prices of Canada’s main export item WTI crude oil, which in turn weigh on the USD/CAD prices amid USD pullback.

US President Joe Biden talked with his Ukrainian counterpart Volodymyr Oleksandrovych Zelenskyy while showing readiness to offer more economic support. On the other hand, Russia repeatedly shows dislike for the Western allies’ interruption and hints at a full-fledged war with Kyiv. Amid these plays, WTI crude oil rallied to the highest levels since late 2014 the previous day, up 0.15% daily near $86.60.

Elsewhere, the US dollar eases from the highest levels last seen during July 2020 as traders await US Core PCE Price Index figures for December as they’re considered the Fed’s preferred version of inflation. Markets expect a 4.8% YoY figure versus 4.7% prior.

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On Thursday, the Advance Q4 US GDP, up 6.9% annualized versus 5.5% market consensus and 2.3% prior. On the same line was the US Initial Jobless Claims for the week ended in January 21that came in 206K compared to 260K expected and 290K previous. It should be noted, however, that the US Durable Goods Orders for December dropped by -0.9% for December, below -0.5% market consensus.

It’s worth noting that the mixed performance of the market, portrayed by steady yields and mildly bid stock futures, also probes the US dollar bulls after the heavy run-up in the last few days.

Looking forward, headlines concerning the Russia-Ukraine tussles may offer immediate direction but major attention should be given to US PCE Price Index data.

Read: US PCE Inflation Preview: Dollar rally has more legs to run

Technical analysis

The USD/CAD pair’s successful trading above the 1.2695-2710 support zone, comprising 200-SMA and 50% Fibonacci retracement (Fibo.) of December-January declines, keeps USD/CAD buyers hopeful amid bullish MACD signals.

On the flip side, short-term sellers will gain momentum on the break of 1.2695. However, an ascending support line from January 20, near 1.2595, will challenge the USD/CAD sellers afterward.