USD/CAD Price Forecast: Flat lines below 1.3900; looks to US CPI for fresh impetus

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The USD/CAD pair lacks any firm intraday directional bias and oscillates in a narrow band below the 1.3900 mark heading into the European session on Tuesday.

USD/CAD consolidates in a range as traders await the release of the crucial US CPI report.
A modest USD uptick supports spot prices, though Fed independence fears cap the upside.
Bullish Crude Oil prices underpin the Loonie and further act as a headwind for spot prices.

The USD/CAD pair lacks any firm intraday directional bias and oscillates in a narrow band below the 1.3900 mark heading into the European session on Tuesday. Spot prices, for now, seem to have stalled the previous day's pullback from the highest level since December 5, touched last Friday, as traders keenly await the release of the US inflation figures.

The US Consumer Price Index (CPI) is due later today and will be followed by the US Producer Price Index (PPI) on Wednesday. Heading into the key data risk, the US Dollar (USD) regains positive traction following the previous day's decline and turns out to be a key factor supporting the USD/CAD pair. However, concerns about the Fed's independence cap any further USD gains. Moreover, the recent rise in Crude Oil prices underpins the commodity-linked Loonie and acts as a headwind for the currency pair.

From a technical perspective, the USD/CAD pair trades beneath the 50-day Simple Moving Average (SMA), which is sloping downward and maintaining a bearish tilt. The said SMA is pegged near the 1.3890 region, and rebounds remain capped by it. The Moving Average Convergence Divergence (MACD) line stands above the Signal line and slightly above zero, while the positive histogram has begun to contract, hinting at moderating upside momentum. The Relative Strength Index (RSI) prints 59, above the midline, which reinforces a mildly bullish tone without reaching overbought.

Measured from the 1.4134 high to the 1.3646 low, Fibonacci retracements act as overhead barriers, with the 50% at 1.3890 and the 61.8% at 1.3948 capping rallies. A daily close above 1.3948 could expose the 78.6% retracement at 1.4030, whereas repeated failure below 1.3890 would keep the pair consolidating under resistance. Overall, momentum has improved, but the declining SMA and clustered Fibonacci levels constrain the advance, and bulls would need a decisive break of these overhead retracements to extend gains.

(The technical analysis of this story was written with the help of an AI tool.)

USD/CAD daily chart

Economic Indicator

Consumer Price Index (YoY)

Inflationary or deflationary tendencies are measured by periodically summing the prices of a basket of representative goods and services and presenting the data as The Consumer Price Index (CPI). CPI data is compiled on a monthly basis and released by the US Department of Labor Statistics. The YoY reading compares the prices of goods in the reference month to the same month a year earlier.The CPI is a key indicator to measure inflation and changes in purchasing trends. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.

Why it matters to traders?

The US Federal Reserve (Fed) has a dual mandate of maintaining price stability and maximum employment. According to such mandate, inflation should be at around 2% YoY and has become the weakest pillar of the central bank’s directive ever since the world suffered a pandemic, which extends to these days. Price pressures keep rising amid supply-chain issues and bottlenecks, with the Consumer Price Index (CPI) hanging at multi-decade highs. The Fed has already taken measures to tame inflation and is expected to maintain an aggressive stance in the foreseeable future.