USD/CAD Analysis: Crude Oil and US CPI Pushing Under 1.2500

• USD/CAD remains under pressure as crude oil recovers.
• US CPI came as expected, dented the Dollar pressure.
• Fed’s tapering decision is highly dependent on the inflation data.

The USD/CAD analysis closed in negative territory on Tuesday as a strong recovery in crude oil helped the commodities-linked Canadian dollar outperform its US counterpart. However, on Wednesday, the pair struggled to contain its losses and last climbed 0.15% on the day to 1.2540.

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A West Texas Intermediate (WTI) crude barrel rose more than 2% Tuesday due to favorable market conditions. WTI, however, struggled to maintain bullish momentum on Wednesday due to the lack of fundamentals. At the time of writing, WTI was down 1.44% to $ 67.30 on the day.

The inflation controversy has erupted in financial markets, and today’s CPI figures in the US provide evidence of how sensitive price movements really are. Overall, the numbers were in line with forecasts, but the dollar declined sharply across the board.

The USD/CAD pair, for instance, fell nearly 40 pips to its lowest level in four days breaking the 1.2500 mark.

USD under pressure in general

It’s surprising how large these moves were, but it relates to the discussion of tapering (September versus December), as well as how fast it will be once it begins. As long as inflation falls naturally, the Fed does not need to raise rates above about 1% of its funds.

In particular, I’m intrigued by how large the movement was on the “inline” CPI print. This suggests that long dollar positions are overflowing, as Goldman Sachs recently warned.

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USD/CAD technical analysis: 200-SMA to lend support

The USD/CAD pair briefly fell below the 1.2500 mark where it found interim support and is rising now. The price remains supported by the 200-period SMA on the 4-hour chart. The price is well below the 20 and 50 SMAs as well. However, the average daily range for the day so far is 71%. It shows that there is still potential to fall further.

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