USD/CAD drops to six week low amid market optimism, eyes Canadian CPI, Retail Sales

• USD/CAD cheers broad US dollar weakness while testing the lowest since September 08.
• Hopes of American stimulus, more funds on Biden’s victory favor trading sentiment.
• Oil prices also gain half a percent and weigh on the pair.
• Canadian consumer-centric numbers, housing data can offer intermediate moves, relief package talks are the key.

USD/CAD battles 1.3100, down 0.23% intraday, while heading into Wednesday’s European open. In doing so, the loonie pair drops to a multi-day low as upbeat trading sentiment weighs on the US dollar. Also pleasing the bears could be the upbeat performance of oil prices, Canada’s biggest export item. However, further selling might catch a breather ahead of Canada’s September month Consumer Price Index (CPI) and New Housing Price Index data for September, as well as Retail Sales for August.

Global markets cheer US House Speaker Nancy Pelosi’s first in many days of praise to the coronavirus (COVID-19) relief package talks even if the policymakers miss the 48-hour deadline to the Tuesday night. Positive trading sentiment ignored signals from US Senate Majority Leader Mitch McConnell, shared by CNBC reporter Carl Quintanilla, which threw cold water on Mr. Trump’s increasingly urgent push to enact a new round of pandemic aid before Election Day, per the tweet.

Other than the aid package discussions, increasing hopes of Joe Biden’s victory in the US presidential election, followed by a huge pumping of money in the markets, also favor the risk tone. Recent chatters over the fresh start to the Sino-American tussle, if Biden wins, added strength to the upbeat sentiment.

While the trade-positive environment supports US stock futures and Treasury yields, it also drags the US dollar index (DXY) down to the lowest since September 21, currently down 0.22% on a day at 92.89. The greenback weakness helps the commodities and backs the WTI’s 0.38% intraday gains despite downbeat inventory data from the American Petroleum Institute (API) published the previous day.

That said, the USD/CAD trader may turn cautious ahead of the key economic figures. Forecasts suggest the headlines CPI YoY to grow by 0.4% versus 0.1% prior whereas Retail Sales may remain unchanged with 1.1% monthly growth. On the contrary, the New Housing Price Index is likely to ease from 0.5% previous readouts to 0.3% and may help the countertrend traders. Though, major attention will be given to how the US Congress members manage to break the stimulus deadlock.

Technical analysis

A clear break of an ascending trend line from September 01, at 1.3115 now, needs validation from a daily closing under 1.3100 to aim for the previous month’s low of 1.2994. Until then, the 61.8% Fibonacci retracement level of last month’s upside near 1.3160 can restrict USD/CAD pullback.