USD/CAD’s selling pressure stands around 1.2780s

The Canadian dollar is recording goodish gains in the week of 0.85%. Friday’s positive market sentiment boosted the appetite for high-beta currencies, like the CAD.

The USD/CAD edges lower in the North American session, extending its weekly losses for the third successive week as investors shrugged off an aggressive Fed, as Core PCE rose to 4.9% but ticked down from 5.1% YoY. At the time of writing, the USD/CAD is trading at 1.2727.

The USD/CAD on Friday began trading near the day’s highs at 1.2784 but slid towards three-week new lows around the 1.2720 area. Technically; the pair remains upward biased, though its two-week downtrend will face a solid support area in the 50 and the 100-day moving averages (DMAs), around the 1.2704-1.2693 area. Nevertheless, USD/CAD bulls need to be careful and not overconfident that the aforementioned level would hold. Why? The Relative Strength Index (RSI) at 44.29 is aiming lower, well within bearish territory, and with enough space before reaching oversold conditions.

Although inflation is heading lower, some factors lurk in the economic environment. First, the geopolitical backdrop keeps pushing energy prices higher. Second, China’s zero-covid policy slowed down the improvement in the supply chains, and thirdly, the tight labor market needs to mitigate a wage-price spiral.

US equities remain positive, reflecting a risk-on mood. The S&P 500 is about to erase its May losses, as the US Commerce Department informed that inflation increased at a slower pace than in March. Will the Fed slow down rate hiking pace after reaching the 2% threshold?

If the USD/CAD two-week downtrend extends, the major’s first support would be the 1.2693-1.2704 area. Break below would expose the 200-DMA at 1.2658, followed by the April 22 low at 1.2566. On the flip side, the USD/CAD first resistance would be 1.2800. Once cleared, the following supply region would be the 20-DMA at 1-2862, followed by the March 8 high at.1.2901.