Yesterday, the USD weakened across the board following the US PPI release where the data came in line with expectations. The reaction showed that the market is eager to buy risk assets and that even little signs of better inflation figures can trigger a positive risk sentiment.
This will be important to remember in light of today’s US CPI report where in line or soft figures will likely lead to more USD selling and strong risk-on sentiment. Conversely, hot readings might have the opposite effect with the USD bid across the board.
On the daily chart, we can see that USDCAD fell back to the key support zone around the 1.36 handle where we can find the confluence of the trendline and the 61.8% fibonacci retracement level. This is where the buyers have been piling in to position for a rally back into the cycle highs. The sellers will need a break to the downside supported by the fundamentals to reverse the trend and start targeting the 1.34 handle. The US CPI report today will likely set the trend for the next few weeks.
