USD/CAD makes a sharp U-turn, slumps below 1.3430

The USD/CAD pair rose to a weekly high of 1.3493 in the early NA session but failed to push higher and changed its direction in the last hour to erase all of its daily gains. As of writing, the pair was down 0.2% on a daily basis at 1.3433.

Earlier today, Statistics Canada reported that inflation, as measured by the Consumer Price Index, ticked up to 2% on a yearly basis in April and came in line with the market expectation. However, the Bank of Canada's core CPI, which strips volatile energy and food prices, fell to 1.5% and missed the analysts' estimate of 1.8%, suggesting that the BoC is unlikely to continue to hike rates in a soft inflation environment and weighed on the loonie. 

However, following the initial spike in reaction to the data, the pair made a sharp U-turn with the latest trade headlines helping the CAD gather strength. According to the Wall Street Journal, Treasury Secretary Mnuchin said they were close to an understanding with Mexico and Canada on resolving steel and aluminum tariffs. 

On the other hand, several news outlets reported that the Trump administration was planning to delay tariffs on European car imports to help the risk appetite return to markets and hurt the demand for the safer greenback. The US Dollar Index, which rose to 97.70 earlier in the session, erased its gains and turned flat near 97.50. Today's data from the U.S. showed that retail sales and industrial production both declined in April but was largely ignored by the markets.

On Thursday, manufacturing shipments and ADP employment change data from Canada will be looked upon for fresh impetus. The U.S. economic docket will feature weekly jobless claims and housing starts figures.

Technical levels to watch for

The pair could face the first hurdle at 1.3500 (psychological level) ahead of 1.3520 (Apr. 24 high) and 1.3600 (Dec. 21, 2018, high). On the downside, supports are located at 1.3425 (daily low), 1.3400 (50-DMA) and 1.3345 (Apr. 23 low).