USD/CAD Retreats Despite Treasury Yield Rally

Canadian Dollar Gains Ground Against U.S. Dollar

USD/CAD is currently trying to settle below the support at 1.2650 while the U.S. dollar is losing ground against a broad basket of currencies.

The U.S. Dollar Index managed to settle below the support at 95.40 and is trying to get below the next support level at 95.20. In case the U.S. Dollar Index declines below this level, it will head towards the support at 95 which will be bearish for USD/CAD.

Today, foreign exchange market traders focused on the inflation reports from U.S. Inflation Rate increased by 0.6% month-over-month in January, compared to analyst consensus which called for growth of 0.5%. On a year-over-year basis, Inflation Rate reached a multi-decade high at 7.5% compared to analyst consensus of 7.3%. Core Inflation Rate increased by 6% year-over-year.

U.S. dollar got a strong boost after the release of the reports but lost momentum and found itself under pressure against a broad basket of currencies. Interestingly, higher Treasury yields failed to provide enough support to the American currency.

The yield of 10-year Treasuries moved above the 2.00% level as traders bet on aggressive rate hikes from the Fed. The shorter-term 2-year Treasury yield moved from 1.35% to 1.50%. While higher yields did not help the U.S. dollar today, traders should continue to monitor the developments in the U.S. government bond markets as this factor may play a role in the upcoming trading sessions.

Technical Analysis

USD to CAD is currently testing the support level at 1.2650. In case USD to CAD declines below this level, it will head towards the next support at 1.2625.

A move below the support at 1.2625 will push USD to CAD towards the next support at 1.2590. If USD to CAD manages to settle below this level, it will head towards the next support at 1.2550.

On the upside, a move back above 1.2650 will open the way to the test of the 50 EMA at 1.2670. The next resistance level is located near the 20 EMA at 1.2680. If USD to CAD climbs back above 1.2680, it will head towards the resistance at 1.2710.

For a look at all of today’s economic events, check out our economic calendar.