USD/CAD Analysis: 200-DMA caps the upside ahead of Canadian CPI, FOMC decision

• USD/CAD caught some strong bids on Tuesday, albeit lacked any strong follow-through.
• An uptick in crude oil prices underpinned the loonie and capped the upside for the pair.
• Investors now eye Canadian CPI figures for some impetus ahead of the FOMC decision.

The USD/CAD pair gained some positive traction on Tuesday and climbed to the top end of a four-day-old trading range. Worries that the fast-spreading Delta variant of the coronavirus could derail the global economic recovery fueled concerns about slowing global fuel demand and weighed on crude oil prices. This undermined the commodity-linked loonie, which extended some support to the major and helped offset a modest US dollar weakness.

The greenback was pressured by a sharp decline in the US Treasury bond yields and rather uninspiring US macro data. In fact, the headline Durable Goods Orders recorded a modest 0.8% growth in June as against 2.1% anticipated. Orders excluding transportation items also fell short of market expectations and rose 0.3% during the reported month. This overshadowed an upward revision of the previous month's reading and failed to impress the USD bulls.

Separately, the Conference Board's US Consumer Confidence Index unexpectedly edged higher from 128.9 to 129.1 in July and remained near its highest level since February 2020. The data did little to provide any meaningful impetus, though an intraday bounce in the US Treasury bond yields helped limit any deeper losses for the greenback. Apart from this, the risk-off impulse in the market further acted as a tailwind for the safe-haven USD.

Nevertheless, the pair settled near the top end of its daily trading range, albeit struggled to capitalize on the move and edged lower during the Asian session on Wednesday. Investors now seemed reluctant to place any aggressive bets, instead preferred to wait on the sidelines ahead of the conclusion of a two-day FOMC monetary policy meeting. The Fed is scheduled to announce its decision later during the US session.

Market participants will look for a clear answer to the crucial question of when the tapering will begin, which will play a key role in driving the USD in the near term. Heading into the key event risk, traders might take cues from the release of Canadian consumer inflation figures during the early North American session. Apart from this, oil price dynamics will influence the loonie and produce some trading opportunities around the major.

Short-term technical outlook

From a technical perspective, the overnight positive move stalled near the very important 200-day SMA. The mentioned barrier is pegged near the 1.2605 region, which should now act as a key pivotal point for short-term traders. A sustained strength beyond will set the stage for additional gains and accelerate the move towards the 1.2665-70 horizontal resistance. This is followed by the 1.2700 mark, above which the pair is likely to climb back to the 1.2770-75 intermediate hurdle. The momentum could further get extended and allow bulls to aim back to challenge multi-month tops, around the 1.2800-10 region, touched last week.

On the flip side, the 1.2555-50 region now seems to protect the immediate downside ahead of the 1.2525 horizontal zone. Some follow-through selling below the key 1.2500 psychological mark will be seen as a fresh trigger for bearish traders and prompt some aggressive technical selling. The pair might then extend the fall towards the 1.2465 support zone before eventually dropping to the next relevant support near the 1.2400 round-figure mark.