USD/CAD struggles at weekly highs around 1.2870 and slips towards 1.2810 post-Fed minutes

The USD/CAD pares earlier gains and gains traction to the downside on Wednesday after the Federal Reserve’s Open Market Committee minutes showed that “all participants” agreed to 50 bps rate hikes in the June and July meetings while emphasizing that inflation has not peaked. At the time of writing, the USD/CAD is trading at 1.2816, down a minimal 0.04%.

On Wednesday, risk-appetite rules the markets. Global equities extended their gains, as reflected by US stock indexes gaining between 0.90% and 2.07%. In the meantime, the greenback stays positive but retraces from weekly highs, as the US Dollar Index record gains of 0.34%, sitting at 102.110.

FOMC Minutes confirmed Fed speaking rhetoric

Digging into the FOMC minutes, Fed officials agreed that the central bank needs to move “expeditiously” to a neutral posture and stated that a “restrictive” policy was appropriate. Most participants emphasized that they were “highly attentive” to inflation risks and added that those risks were skewed to the upside. Those officials reiterated that prices remained elevated and that it is “early” to be confident that inflation peaked.

Additionally, all Fed officials added that they agreed that the US economy was “very strong” and inflation “very high.” Moreover, FOMC members added that the Ukraine conflict and China’s lockdowns posed high risks and reiterated that restoring price stability would be challenging when the central bank scrambles to keep a solid labor market.

An absent Canadian docket would let USD/CAD traders adrift to US economic data. On the US front, the economic docket would feature Initial Jobless Claims and the Fed’s favorite gauge of inflation, the Personal Consumption Expenditure (PCE).

USD/CAD Price Forecast: Technical outlook

The USD/CAD is still upward biased, as depicted by the daily chart. However, on Wednesday, the 20-day moving average (DMA) at 1.2869 was a difficult resistance to break for USD/CAD buyers, as the exchange rate tumbled as high oil prices boosted the oil-linked currency, the Canadian dollar. If USD/CAD bears achieve a daily close below 1.2800, that will open the door for further downward pressure, and the major could aim towards 1.2600.

The 4-hour chart depicts the USD/CAD as neutral-downward biased in the short term. From a market structure perspective, USD/CAD bears need to break below the confluence of the May 23 swing low and the 200-SMA around the 1.2765-76 area. If that scenario plays out, that will send the pair towards the  1.2713 swing low; once cleared would expose the February 10 daily low at 1.2636.