USD/CAD drops below 1.27 on dismal US inflation data

The USD/CAD pair came under pressure after the U.S. inflation data failed to meet the market expectations and dropped to a fresh 3-day low at 1.2654. Following the initial sell-off, the pair started to erase its losses and was last trading at 1.2682, losing 0.47% on the day.

According to the data released by the U.S. Bureau of Labor Statistics announced on Friday, the Consumer Price Index (CPI) rose 0.1% in July on a monthly basis after staying unchanged in June and missed the market consensus of 0.2%. This monthly increase pushed the consumer inflation on a yearly basis to 1.7% in July from 1.6%. The US Dollar Index slumped below the 93 mark for the first time this week before retracing a portion of its losses. As of writing, the index was at 93.13, dropping 0.18% on the day.

• US: CPI for all urban consumers rose 0.1% in July on a seasonally adjusted basis
• US: Real average hourly earnings for all employees increased 0.2% from June to July

On the other hand, the fact that crude oil prices are having a difficult time correcting yesterday's sharp downfall helps the pair find support as investors remain hesitant to add to their long positions of the commodity-sensitive loonie. At the moment, the barrel of West Texas Intermediate is trading at $48.40, down 0.4%.

• Oil: Volatility prevails - BBH

With no more data left in the remainder of the day, markets will follow the remarks by the Dallas Fed President Robert Kaplan and the Minneapolis Fed President Neel Kashkari. If they touch on the dismal inflation reading and adopt a dovish tone, the greenback could face further selling pressure.

Technical outlook

Despite this latest drop, the USD/CAD pair is still looking to close the week with gains for the second time in a row. However, the RSI on the daily graph eased back to the 50 handle, suggesting that the bullish momentum is losing strength. 1.2700 (psychological level/Jul. 17 high) could be seen as the initial resistance ahead of 1.2750 (daily high) and 1.2800 (psychological level). On the downside, supports are located at 1.2650/40 (daily low/10-DMA), 1.2555 (Aug. 4 low) and 1.2500 (psychological level).