USD/CAD in the Hands of US Wholesale Inflation as 1% Bets Rise

It is a relatively busy day ahead for the USD/CAD. From Canada, July manufacturing sales figures will draw interest. However, we don’t expect too much influence on the Loonie, with crude oil inventories and the IEA monthly report also out today.

From the US, wholesale inflation numbers for August could deliver another USD/CAD spike. Hopes of a less aggressive post-September Fed faded on Tuesday, with the US CPI report catching the markets by surprise. Rising bets of a percentage point increase would drive demand for the Greenback,

Following the US CPI report, bets of a percentage point rate hike have increased to 38% versus a pre-CPI report of 0% on Tuesday.

USD/CAD Price Action

At the time of writing, the USD/CAD was down 0.02% to 1.31606. A mixed start to the day saw the USD/CAD rise to an early high of 1.31815 before falling to a low of 1.31591.

Technical Indicators

The USD/CAD will need to avoid the 1.3098 pivot to target the First Major Resistance Level (R1) at 1.3241 and resistance at 1.3250. A pickup in expectation of a percentage point rate hike would support a breakout from the Tuesday high of 1.31752.

In case of another risk-off-fueled extended rally, the USD/CAD should test the Second Major Resistance Level (R2) at 1.3319. The Third Major Resistance Level (R3) sits at $1.3540.

A fall through the pivot would bring the First Major Support Level (S1) at $1.3020 into play. Barring a risk-on-fueled rally, the USD/CAD should avoid sub-1.30 and the Second Major Support Level (S2) at 1.2876. The Third Major Support Level (S3) sits at 1.2655.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bullish signal. This morning, the USD/CAD pair sat above the 50-day EMA, currently at 1.30755.

The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening on the 200-day EMA, delivering bullish signals for the USD/CAD pair. A hold above the 50-day EMA would support a run at 1.32.

However, a fallback through the 50-day EMA (1.30755) and the 100-day EMA (1.30517) would give the bears a run at S1 (1.3020). The 200-day EMA sits at 1.30031. Soft wholesale inflation numbers would support a dollar retreat.

The US Session

US wholesale inflation numbers will draw interest going into the US session. Better-than-expected numbers would raise bets of a one percentage point rate hike and a more aggressive Fed move at the November meeting.

There are no FOMC member speeches to consider, with the FOMC in its September blackout period (September 10-22). The lack of chatter will leave the markets in data-dependent mode.

A DXY move to 111 would be on the cards should today’s wholesale inflation numbers point to further consumer price pressure down the road.