USD/CAD Analysis: Oscillates in a range above 61.8% Fibo.; eyes US CPI for fresh impetus

• USD/CAD remains on the defensive near the weekly trough, though lacks follow-through.
• Dovish Fed expectations continue to weigh on the USD and act as a headwind for the pair.
• Bearish Oil prices undermine the Loonie and lend support ahead of the key US CPI report.

The USD/CAD pair trades with a mild negative bias through the early European session on Thursday and is currently placed below the 1.3600 mark, near the lower end of its weekly range. The US Dollar (USD) languishes near a two-and-half-week low touched on Wednesday on the back of expectations that the Federal Reserve (Fed) will maintain the status quo in November, which, in turn, is seen weighing on the major. In fact, several Fed officials sounded cautious about the need to hike interest rates further, especially after the recent sharp rise in the US Treasury bond yields. The dovish comments now seem to have convinced market participants that the Fed is nearing the end of its policy tightening cycle, which is reinforced by a further decline in the US Treasury bond yields. Apart from this, a generally positive tone around the equity markets is seen as another factor weighing on the safe-haven Greenback.

Meanwhile, the minutes from the September 19-20 FOMC meeting, released on Wednesday, showed that policymakers remain concerned about the downside risks to the US economy. The Fed's rate-setting committee, however, agreed that rates policy should stay high for some time until the central bank is confident that inflation is moving down sustainably toward its objective. This leaves the door open for at least one more interest rate hike by the end of this year. This, in turn, is holding back traders from placing aggressive bearish bets around the USD and should help limit the downside for the USD/CAD pair ahead of the latest US consumer inflation figures, due for release later during the early North American session. The crucial US CPI report should provide fresh cues about the Fed's future rate-hike path, which, in turn, will drive the USD demand and determine the next leg of a directional move for the major.

In the meantime, the overnight sharp decline in Crude Oil prices is seen undermining the commodity-linked Loonie and lending additional support to the USD/CAD pair. Concerns about potential supply disruptions due to the Israel-Palestinian conflict receded after Saudi Arabia pledged to help stabilise the market, which, in turn, acts as a headwind for the black liquid. The top OPEC producer said that it was working with regional and international partners to prevent an escalation. This comes on top of worries that a global economic slowdown will dent fuel demand. In fact, the US Energy Information Administration (EIA) lowered its demand growth forecasts for this year and next, which might continue to cap the upside for Crude Oil prices. The aforementioned fundamental backdrop makes it prudent to wait for strong follow-through selling before traders start positioning for any further depreciating move for the major.

Technical Outlook

From a technical perspective, the USD/CAD pair, so far, has managed to defend the 61.8% Fibonacci retracement level of the late September-early October positive move. The said support is pegged near the 1.3555 region and should now act as a key pivotal point. A convincing break below might prompt aggressive selling and drag spot prices further towards the 1.3500 psychological mark. The downward trajectory could get extended further towards challenging the 100-day Simple Moving Average (SMA), currently around the 1.3415 region, which now coincides with the September 29 swing low. Failure to defend the latter will be seen as a fresh trigger for bearish traders and pave the way for deeper losses.

Meanwhile, oscillators on the daily chart – though have corrected from higher levels – are still holding in the positive territory and favour bullish traders. Any positive move beyond the 1.3600 mark, however, is more likely to confront stiff resistance near the overnight swing high, around the 1.3625 region, which if cleared decisively should allow the USD/CAD pair to reclaim the 1.3700 round figure. The subsequent move-up has the potential to lift spot prices back to the multi-month high, around the 1.3785 region touched Wednesday. This is closely followed by the 1.3800 round-figure mark, above which bulls could aim to challenge the YTD peak, around the 1.3860 area touched on March 10.