USD/CAD Forecast: Bulls await US CPI for fresh impetus amid weaker crude oil prices

The USD/CAD pair regained positive traction on Tuesday and reversed a part of the previous day's slide, though struggled to capitalize on the move beyond the 1.2900 mark. Crude oil prices shot to a multi-day high in reaction to the news that Ukraine has suspended Russian oil pipeline flows to parts of central Europe since early this month. This, in turn, offered some support to the commodity-linked loonie and acted as a headwind for the major amid a modest US dollar weakness.

The New York Fed’s monthly Survey of Consumer Expectations showed on Monday that the inflation outlook declined significantly in July. This pushed back against the idea of a more aggressive policy tightening by the Fed and exerted some downward pressure on the buck. The markets, however, are still pricing in around 70% chances of a 75 bps Fed rate hike move at the September meeting. This, along with a softer risk tone, helped limit deeper losses for the safe-haven greenback.

The market sentiment remains fragile amid growing recession fears and US-China tensions over Taiwan. Investors also remain concerned that a global economic downturn could hit fuel demand. Furthermore, the latest progress to revive the Iran nuclear accord might clear the way to boost crude supply in a tight market and prompt fresh selling around the black liquid. This, in turn, assisted the USD/CAD pair to hold steady through the Asian session on Wednesday and ahead of the US CPI report.

The latest US consumer inflation figures are due for release later during the early North American session. The crucial data would be looked upon for fresh clues about the Fed's policy outlook and play a key role in driving the USD demand in the near term and provide a fresh impetus to the USD/CAD pair. Apart from this, traders would take cues from the broader market risk sentiment and oil price dynamics to grab some meaningful opportunities around the major.

Technical Outlook

From a technical perspective, acceptance above the 50% Fibonacci retracement level of the 1.2518-1.3224 strong rally favours bullish traders. That said, it would still be prudent to wait for a sustained strength beyond the 1.2900 mark before positioning for any further appreciating move towards the 1.2930-1.2935 hurdle. This is closely followed by the 38.2% Fibo. level, around mid-1.2900s, ahead of the monthly peak, near the 1.2985 region. Some follow-through buying, leading to a subsequent strength above the 1.3000 psychological mark, should pave the way for a move towards the 1.3055-1.3060 region, or the 23.6% Fibo. level.

On the flip side, the 1.2840-1.2835 region now seems to have emerged as immediate strong support. Any subsequent decline is likely to remain limited near the 1.2800 mark ahead of the 1.2790-1.2785 confluence. The latter comprises the 100-day SMA and the 61.8% Fibonacci retracement level of the 1.2518-1.3224 strong rally, which should act as a key pivotal point. A convincing break below would be seen as a fresh trigger for bearish traders and make the USD/CAD pair vulnerable. Spot prices could then accelerate the fall towards the 1.2700 round-figure mark before eventually dropping to the next relevant support near the 1.2655-1.2650 region.