USD/CAD Forecast: Seems vulnerable to challenge 200-day SMA, US PCE in focus

• USD/CAD stages a modest recovery from over a two-month low amid a modest USD strength.
• Thursday’s upbeat US macro data revives hawkish Fed expectations and underpins the buck.
• The underlying bullish tone around crude oil prices benefits the Loonie and caps the upside.
• Traders now eye US Core PCE Price Index for some impetus ahead of the FOMC next week.

The USD/CAD pair regains some positive traction during the Asian session on Friday and reverses a part of the previous day's slide to the 1.3300 mark, or its lowest level since November 17. The uptick is sponsored by the emergence of some buying around the US Dollar, bolstered by the mostly upbeat US macro data released on Thursday. The US Commerce Department, in its Advance fourth-quarter GDP estimate, reported that the economy expanded at a 2.9% annualised pace against consensus estimates for a reading of 2.6%. A separate report showed that the US Initial Jobless Claims unexpectedly dropped to 186K during the week ended January 21 from 192K previous.

Furthermore, the headline Durable Goods Orders smashed expectations and grew 5.6% in December, though orders excluding transportation items fell -0.1% MoM. Nevertheless, the data points to a resilient US economy, which should allow the Federal Reserve to maintain its hawkish stance for longer. This leads to a further recovery in the US Treasury bond yields and is seen underpinning the greenback. The robust economic indicators, meanwhile, boost investors' confidence and acts as a headwind for the safe-haven greenback. Apart from this, the underlying bullish sentiment surrounding crude oil prices could benefit the commodity-linked Loonie and cap the USD/CAD pair.

Hopes for a strong fuel demand recovery in the world's top oil importer China, along with the lower-than-expected rise in US crude inventories, continue to lend some support to the black liquid. That said, worries about a deeper global economic downturn might keep a lid on any further gains for Oil prices ahead of the upcoming OPEC+ panel meeting on February 1. In the meantime, traders on Friday will take cues from the release of the US Core PCE Price Index - the Fed's preferred inflation gauge. This, along with the US bond yields and the broader risk sentiment, will influence the USD price dynamics and produce short-term trading opportunities around the USD/CAD pair.

Technical levels to watch

From a technical perspective, the recent failure near the 100-day SMA and the overnight close below the 1.3355-1.3350 region favours bearish traders. Moreover, oscillators on the daily chart have just started gaining negative traction and support prospects for a further near-term depreciating move. Some follow-through selling below the overnight swing low, around the 1.3300 mark, will reaffirm the bearish bias and make the USD/CAD pair vulnerable. Spot prices might then accelerate the fall towards the next relevant support near the 1.3250 area en route to November 2022 low, around the 1.3225 region and the 1.3200 round-figure mark. The latter coincides with the very important 200-day SMA, which if broken decisively should pave the way for deeper losses.

On the flip side, any attempted recovery above the 1.3350-1.3355 horizontal support breakpoint might attract fresh sellers near the 1.3400 mark. This, in turn, could cap the USD/CAD pair near the weekly high, around the 1.3415-1.3420 zone, touched in the aftermath of a dovish Bank of Canada decision on Wednesday. Some follow-through buying, however, might trigger a short-covering rally and lift spot prices towards the 1.3500 psychological mark en route to the 100-day SMA, currently around the 1.3515-1.3520 region. The latter should act as a pivotal point, which if cleared decisively might shift the near-term bias in favour of bullish traders.