USD/CAD Analysis: Bulls not ready to give up, look to US macro data for fresh impetus

• USD/CAD regains some positive traction on Friday amid the emergence of some USD buying.
• Rising US bond yields underpin the USD, through Fed rate cut uncertainty might cap gains.
• Traders now look to the US macro data for some impetus ahead of next week’s key releases.

The USD/CAD pair attracts some dip-buyers on Friday and for now, seems to have stalled a two-day-old corrective decline from the 1.3585 region, or its highest level since December 13. A goodish pickup in the US Treasury bond yields, bolstered by Atlanta Federal Reserve President Raphael Bostic's hawkish-sounding remarks, helps revive the US Dollar (USD) demand and acts as a tailwind for the currency pair. Bostic acknowledged that the Fed has made a lot of progress in lowering inflation pressures, though cautioned that it may take longer for the central bank to begin cutting interest rates. This comes on top of stronger-than-expected US consumer inflation figures earlier this week and helps offset Thursday's disappointing release of the US monthly Retail Sales.

The Commerce Department reported that Retail Sales declined sharply by 0.8% in January as compared to the 0.1% fall expected. Moreover, the reading for December was also revised lower to show sales rising by 0.4% instead of 0.6% as reported previously. Additional details of the report showed that sales excluding auto also missed consensus estimates and contracted by 0.6% during the reported month. A separate report from the Labor Department showed that Initial Jobless Claims fell by 8,000 to a one-month low level of 212K during the week ended February 10 and pointed to a still resilient labor market. This reaffirms expectations that the Fed could cut rates at the June meeting, triggering a fresh leg up in the US bond yields and underpinning the USD.

That said, a generally positive tone around the equity markets might hold back traders from placing aggressive bullish bets around the safe-haven buck. Adding to this, Crude Oil prices remain well within the striking distance of the monthly peak touched on Wednesday, which might continue to underpin the commodity-linked Loonie and contribute to capping gains for the USD/CAD pair. Traders now look forward to the US economic docket – featuring the release of the Producer Price Index, Housing Starts and the Preliminary Michigan Consumer Sentiment Index. This, along with speeches by influential Fed officials and the broader risk sentiment, will drive the USD demand and provide some impetus to the major. The focus will then shift to Canadian consumer inflation figures on Tuesday, which will be followed by the release of FOMC minutes on Wednesday.

Technical Outlook

From a technical perspective, the recent failure to find acceptance above the 100-day Simple Moving Average (SMA) and a subsequent slide from the 1.3600 neighbourhood constitutes the formation of a double-top pattern on the daily chart. Furthermore, the overnight breakdown through the 1.3500 psychological mark and a close below the 200-day SMA support prospects for deeper losses. That said, oscillators on the daily chart are still holding in the positive territory and warrant some caution for bearish traders.

Meanwhile, the 1.3460-1.3450 congestion zone might continue to protect the immediate downside, below which the USD/CAD pair could accelerate the slide towards the 1.3400 round figure. The next relevant support is pegged near the 1.3360-1.3355 horizontal zone. A convincing break below the latter will validate the bearish double-top pattern and pave the way for a further near-term depreciating move.

On the flip side, momentum beyond the 1.3500 mark is likely to confront some resistance near the 100-day SMA, around the 1.3565 zone. This is followed by a two-month top near the 1.3585 region. Some follow-through buying, leading to a move beyond the 1.3600 mark and the 1.3620 supply zone, could lift the USD/CAD pair to the 1.3700 mark en route to the next relevant barrier near the 1.3745-1.3750 region.