USD/CAD Declined Sharply Testing Key Support

The dollar moved sharply lower on Wednesday following a strong CPI report in line with expectations. U.S. Treasury yields were mixed as the 2-year yield moved higher and the 10-year edged lower, which caused curve flattening. Consumer prices rose to a 50-year high on a year-over-year basis. The Fed Beige Book was released on Wednesday. Consumer spending grew at a modest pace.

Technical Analysis

The USD/CAD moved lower on Wednesday testing support is seen near the 200-day moving average at 1.25. Resistance seen near the 10-day moving average at 1.2669. The 10-day moving average crossed below the 50-day moving average which means a short-term downtrend is in place. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. Prices are oversold as the fast stochastic is printing a reading of 2, below the oversold trigger level of 20. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line). The MACD histogram is printing in negative territory with a downward sloping trajectory which points to a lower exchange rate.

The CPI Index Hit a 50-Year High

On Wednesday, the Bureau of Labor Statistics released its Consumer Price Index. Headline inflation at the consumer level was 7% year over year. Monthly figures increased by 0.5%. These figures were the highest level of inflation since 1982. Expectations were for CPI to increase  7% on an annual basis and 0.4% from November. Excluding food and energy, the so-called core CPI was up 5.5% on the year, the biggest growth since February 1991.