USD/CAD Price Analysis: Flirts with daily lows, just above mid-1.2500s ahead of Canadian CPI

• USD/CAD faced rejection near 200-day SMA and edged lower on Wednesday.
• The set-up still favours bulls and supports prospects for a break to the upside.
• Sustained weakness below 1.2500 is needed to negate the positive outlook.

The USD/CAD pair continued with its struggle to find acceptance/build on the momentum beyond the 1.2600 mark and faced rejection near the very important 200-day SMA on Wednesday. The pair dropped to fresh daily lows, around the 1.2560 region and has now reversed a part of the previous day's positive move.

A modest uptick in crude oil prices underpinned the commodity-linked loonie and turned out to be one of the key factors that acted as a headwind for the USD/CAD pair. That said, renewed buying interest around the US dollar should help limit any meaningful pullback for the major, at least for the time being.

The prevalent risk-off environment continued benefitting the safe-haven greenback, which was further supported by a goodish pickup in the US Treasury bond yields. Apart from this, traders might also be reluctant to place any aggressive bets ahead of the Canadian CPI report and the FOMC monetary policy decision.

Looking at the technical picture, the USD/CAD pair has been oscillating in a range over the past one week or so. The top boundary of the trading band coincides with 200-day SMA and should act as a key pivotal point for short-term traders. A sustained strength beyond will set the stage for additional gains.

Meanwhile, technical indicators on the daily chart – though have corrected from higher levels – are still holding comfortably in the bullish territory. This, in turn, supports prospects for the emergence of some dip-buying at lower levels. Hence, any subsequent fall might still be seen as a buying opportunity.

From current levels, the 1.2525 horizontal zone should protect the immediate downside ahead of the 1.2500 psychological mark. A convincing break below might shift the bias in favour of bearish traders. The USD/CAD pair might then turn vulnerable and accelerate the slide to the next relevant support near the 1.2435 region.

On the flip side, some follow-through buying beyond the 1.2600 mark will be seen as a fresh trigger for bulls and lift the USD/CAD pair towards the 1.2665-70 intermediate hurdle. The momentum could further get extended towards the 1.2700 mark before bulls eventually push the pair to the 1.2770-75 resistance zone.

USD/CAD 4-hour chart

Technical levels to watch