USD/CAD retreats after soft CPI data from the USD, holds the 100-day SMA

• USD/CAD trades with losses near 1.3400 as bulls battle to defend the 100-day SMA at 1.3390.

• Core CPI from the US dropped to 4.7% in July, and Jobless Claims picked up in August.

• Lower yields and dovish bets weakened the USD. Eyes on Fed speakers.

On Thursday, the USD/CAD pair took a step back towards the 1.3400 region, while maintaining its position above the significant support of the 100-day Simple Moving Average (SMA) at 1.3390. The drop of the USD was prompted by weak inflation data; conversely, the CAD was hit by overbought conditions resulting from a correction in oil prices. Data released by the US Bureau of Labor Statistics indicated that the US Consumer Price Index (CPI) for July saw a month-on-month increase of 0.2%, in line with expectations. However, the annual measure dipped to 3.2% year-on-year, a touch below the anticipated 3.3%. Additionally, the core CPI advanced by 0.2% in the same month as expected, while the year-over-year metric fell to 4.7%, slightly beneath the forecasted 4.8%. Further compounding the situation, initial jobless claims for the first week of August rose to 248,000, exceeding the predicted 230,000 and surpassing the preceding week's 227,000. This development signals a potential relaxation in the labor market.

As a reaction, the US bond yields have weakened across the curve. The 10-year bond yield fell to 4.01%, while the 2-year yield sits at 4.77% and the 5-year yielding 4.12%. Downward movements reflect dovish bets on the Federal Reserve (Fed), and according to the CME FedWatch tool, markets are confident that the Fed wont hike either in September or in November. However, incoming data will be the ones which shape the next monetary policy decisions.

USD/CAD Levels to watch

The daily chart shows exhaustion for the USD/CADs bulls. The Relative Strength Index (RSI) displays a negative slope but stands above its midline, while the Moving Average Convergence (MACD) prints decreasing green bars. On the bigger picture, the pair is above the 20 and 100-day Simple Moving Averages (SMA) but below the 200-day SMA, highlighting the continued dominance of bulls in the broader perspective. However, buyers must soon overcome the 200-day SMA to confirm an upward trajectory.

Support levels: 1.3380 (100-day SMA),1.3350, 1.3300.

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

USD/CAD Daily chart