So far today, the US dollar has been under pressure, with the USD/CAD pair trading half a percent during the US session. As of writing, it was changing hands near 1.3630 but still in a medium-term uptrend.
Focus on economic data and inflation
However, Federal Reserve Bank of Cleveland President Loretta Mester and Federal Reserve Bank of New York President John Williams have recently advocated for higher interest rates.
In contrast, the US S&P Global Manufacturing PMI decreased to 46.2 in December from 47.7 in November and market expectations of 47.7. In addition, the S&P Global Services PMI for December fell to 44.4 from 46.2 in November and market expectations of 46.8.
Moving forward, the Bank of Canada’s (BoC) Consumer Price Index (CPI) Core for November, projected at 6.4% YoY versus 5.8% prior, will be significant for USD/CAD traders ahead of the Fed’s preferred measure of inflation, namely Friday’s US Core Personal Consumption Expenditures (PCE) – Price Index, which is anticipated to be 4.6% YoY and 5.8% previously.
Should the US inflation decelerate, and the Canadian inflation accelerate, it might be a strong bearish signal for the USD/CAD pair, likely leading to a halt in the current uptrend.
WTI recovers slightly, likely supporting CAD
Oil prices increased on Monday after plummeting by more than $2 a barrel in the previous session, as confidence about China’s economy outweighed worries about a worldwide recession.
In addition, Oil was bolstered by the US Energy Department’s announcement on Friday that it will begin repurchasing oil for the Strategic Petroleum Reserve – the first purchases since the release of a record 180 million barrels from the reserve this year.
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Still, the US is not scheduled to provide any market-moving economic data Monday, putting the USD at the mercy of US bond rates and wider risk sentiment. Aside from this, traders will look to oil price dynamics to identify short-term chances in the USD/CAD currency pair.
Down to trendline?
It looks like the general optimistic mood in the markets could push the price back to the bullish trend line, currently near 1.35. If the price drops below it, the bullish trend could be over, likely leading to another leg lower toward 1.33.
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On the other hand, if sentiment deteriorates again, the pair could attack the swing highs near 1.37, with a break above possibly sending the USD/CAD pair to previous highs near 1.38.
USDCAD daily chart, author’s analysis, source: tradingview.com