The USD/CAD outlook leans bearish as the Canadian dollar firms after the BoC’s upbeat outlook for Canada’s economy and ahead of the inflation report. At the same time, the dollar pulled back as markets prepared for the PCE price index report coming on Friday.

On Monday, the Canadian dollar surged to a three-week high after BoC governor Tiff Macklem said the economy could grow as inflation eases. He also believes the central bank will achieve a soft landing.

The Bank of Canada recently started its rate-cutting cycle. Moreover, traders place a 72% chance of another cut in July. However, this likelihood might change with the CPI data coming today. Economists expect the consumer inflation report to show inflation falling to an annual rate of 2.6% in May from 2.7% in the previous month. Experts believe such an outcome would make another rate cut in July certain. 

The Canadian dollar also got support from increased oil prices in the previous session. The rally came amid optimism about a looming increase in demand during the summer driving season.

On the other hand, the US dollar fell as investors awaited more data for clues on the Fed’s policy outlook. This week’s main focus is the PCE price index report. Economists expect the figures to show further moderation in inflation, which might increase Fed rate cut expectations.

USD/CAD key events today

• Canada’s Consumer Price Index m/m
• Canada’s median Consumer Price Index y/y
• Canada’s trimmed Consumer Price Index y/y
• US CB Consumer Confidence

USD/CAD technical outlook: Bears find footing below 1.3680

USD/CAD 4-hour chart

On the technical side, the USD/CAD price has broken below the 1.3680 key support level. At the same time, it has pushed well below the 30-SMA, with the RSI nearing the oversold region. Consequently, the bearish bias has strengthened. 

However, the price has reached the 0.786 Fib level which might act as support. If this happens, the price might return to retest the recently broken 1.3680 level. However, since the bearish bias is strong, there is a high chance the downtrend will continue with the next target at 1.3605.

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