USD/CAD loses ground after hot PPI data from the US

At the end of the week, the USD/CAD was rejected by the 200-day Simple Moving Average (SMA) at 1.3450 and settled near 1.3430. On the one hand, the USD is trading mildly stronger after hot Producer Price Index (PPI) from July figures which fueled a rise in American bond yields, while the CAD got a boost on the back of rising Oil prices.

Markets asses US inflation data and start to place bets on a hike by the Fed in November

US Producer Price Index from July came in higher than expected. The headline figure rose by 0.3% MoM to 0.8% YoY while the core measure advanced 0.3%  MoM vs 0.2% expected to a yearly measure of 2.4%.

As a reaction, the US bond yields are seeing gains across the curve. The 10-year bond yield rose to 4.13%, while the 2-year yield stands at 4.87% and the 5-year yielding 4.25%, respectively. In that sense, higher yields can be attributed to investors placing higher bets on a 25 basis point (bps) hike in November’s Federal Reserve (Fed) meeting. As for now, and according to the CME FedWatch tool, those odds stand at 64% in favour of a no hike and nearly 30% in favour of a hike, vs last week's 25%. For the September meeting, the stronger case continues to be the Fed not hiking.

Other data released by the US by the University of Michigan indicated that its Sentiment index rose to 71.2, better than the 71 expected, while 5-year Consumer Inflation Expectations dropped to 2.9%.

On the other hand, Oil prices resumed their upwards path and as it is one of Canada’s main exports, higher energy prices strengthened the CAD. Data-wise, nothing relevant will be released on Friday for the Canadian economy.

USD/CAD Levels to watch

Analysing the daily chart, indicators point at a neutral to the bearish technical outlook for the  USD/CAD, suggesting that the bulls are starting to give up. The Relative Strength Index (RSI) points downwards in the bullish territory, suggesting a possible trend reversal, while the Moving Average Convergence (MACD) prints lower green bars. On the weekly chart, the bullish outlook is more evident as the pair will record its fourth-consecutive weekly gain at the end of this session.

Support levels: 1.3350 (100-day SMA),1.3350, 1.3300.

Resistance levels: 1.3450 (200-day SMA), 1.3500,1.3550.

USD/CAD Daily chart