USD/CAD took a U-turn from 200-day SMA, Canadian inflation and Fed Chair’s testimony eyed

• USD/CAD trades near 1.3175 during initial Asian trading on Wednesday.
• The pair bounced off the 200-day SMA as the USD witnessed short-covering.
• Fed Chair’s testimony and Canadian CPI will be observed closely during the rest of the day.

The USD/CAD pair is on bids around 1.3175 during early Wednesday. The pair failed to extend Tuesday’s decline and bounced off the 200-day simple moving average (SMA). The second day of the Fed Chair Jerome Powell’s testimony and monthly reading of headline Canadian inflation numbers like consumer price index (CPI) will be closely observed to determine near-term pair direction.

The US Dollar (USD) declined across the board on Tuesday as the Fed Chair refrained from signaling any new detail of the future policy moves during his first day of testimony. The greenback’s drop was also magnified by the plunge of monthly housing start figures.

During early Wednesday, commodity-linked currencies like AUD, NZD and CAD witnessed pullbacks due to the overall short-covering in the US Dollar. With this, the USD/CAD pair also took a U-turn from 200-day SMA level around 1.3150.

Looking forward, the second part of the Fed Chair Jerome Powell’s semi-annual testimony and Canadian CPI will be in the pair traders’ radar for now.  

The Fed Chair is likely to repeat yesterday’s remarks over the strength of the US economy that requires patience for further rate hikes. Further, Canadian CPI MoM is likely to increase by +0.2% from earlier -0.1% during the month of January whereas the yearly result may show soft inflation figure of 1.5% compared to the 2.0% registered at the starting month of 2018.

USD/CAD Technical Analysis

In addition to the 200-day SMA level around 1.3150, an upward sloping support-line that joins lows of October and February, at 1.3120, also becomes an important rest for the pair. Should the quote slips under 1.3120, chances of its drop to an early-month low of 1.3065 can’t be denied.

Alternatively, 1.3240 and 1.3280 can restrict the pair’s nearby advances ahead of fueling it to 1.3330.