USD/CAD steps back from 200-DMA on oil’s recovery, focus on Canada CPI, FOMC

USD/CAD remains pressured around 1.2585, down 0.14% intraday, ahead of Wednesday’s European session. In doing so, the Loonie pair takes clues from the recovery in oil prices, as well as the US dollar weakness. However, cautious sentiment ahead of the US Federal Open Market Committee (FOMC) verdict and Canada Consumer Price Index (CPI) for June keeps the buyers hopeful.

WTI prints 0.27% gains on a day while keeping the previous day’s rebound from $70.90. The oil benchmark justifies downbeat US dollar and bullish Weekly Crude Oil Stock data from the American Petroleum Institute (API), -4.728M versus +0.806M prior. Also helping the oil prices could be the recent chatters surrounding OPEC+ and developing economies.

The US Dollar Index (DXY) prints three-day south-run, down 0.03% around 92.45, as market players await the Fed. It should be noted that the greenback recovers of late, amid safe-haven demand, as the covid woes in Australia and the UK escalates while the US also edits mask mandate.

Though, China’s crackdown on IT and tuition sectors join the comparatively hawkish Bank of Canada (BOC) that the Fed to weigh on the USD/CAD prices.

Amid these plays, S&P 500 Futures track Wall Street’s losses and the US 10-year Treasury yields lick their wounds around 1.23% by the press time.

Although the pre-Fed trading lull can keep USD/CAD pressured, likely softening in Canada’s headline inflation numbers for June may restrict the pair’s downside. However, it all depends upon how well the Fed policymakers, specifically Chairman Jerome Powell, manage to defend the easy-money policies.

Read: Federal Reserve Preview: Three reasons why Powell could pause, pummeling the dollar

Technical analysis

USD/CAD pair’s U-turn from 200-DMA gains support from the bearish MACD signals, which in turn directs short-term sellers towards the weekly horizontal support surrounding 1.2530-25. Though, June’s top near 1.2485 will be a tough nut to crack for the sellers afterward. Meanwhile, a daily closing beyond the key level of 1.2605 will be challenged by the highs marked in April and July, respectively around 1.2655 and 1.2810.