USD/CAD Retraces Gains as Risk Appetite Improves

The dollar returned to the breakout level after it finally broke out of its range to 1.28 against the Canadian dollar, its best level of the year. U.S. benchmark yields rose as the dollar retraced against most major currencies. The 10-year yield edged higher while Gold prices declined. Commentary that Putin will take an invitation from China’s President to discuss high-level talks about the invasion seemed to calm market sentiment.

U.S. data was mixed on Friday. While consumer spending was more substantial than expected, Pending Home sales fell. Based on contract signings, the Pending Home Sales Index fell 5.7% to 109.5 in January. Year-over-year, transactions decreased 9.5%

In January, consumer spending in the U.S. rose 2.1% from the previous month, bouncing back from a revised 0.8% decline in December. Personal income was unchanged on the month, following the expiration of the federal government’s monthly child tax credit.

Technical Analysis

The USD/CAD retraced Thursday’s gains after breaking out of the upper end of its range against the Loonie. Support is seen near the 10-week moving average near 1.27. Resistance is seen near the 200-week moving average near 1.31. Short-term momentum is negative as the fast stochastic generates a crossover sell signal.

Medium-term momentum is positive as the MACD (moving average convergence divergence) index generated a crossover buy signal. The MACD line (the 12-day moving average minus the 26-day moving average) converges to the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram prints in positive territory with an upward sloping trajectory.