USD/CAD fluctuates at a 1.5-month low near 1.2800, with emphasis on US PCE inflation

During Friday's Asian session, USD/CAD bids increase to 1.2810 as the pair licks its wounds close to a six-week low. In a dull day, the Loonie pair draws its cues from the weaker oil prices and the US dollar's respite from further decline.

WTI crude oil extends yesterday's drop from a one-week high around $96.00, down 0.26 percent intraday as of press time near $96.30. The current decline in the price of black gold may be attributable to the update from the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known collectively as OPEC+. Thursday, Reuters quoted eight persons familiar with the situation who indicated that there would be no significant adjustment in OPEC+ output.

US Dollar Index (DXY) maintains 106.00 while remaining close to its lowest level since July 5th. The dollar index has declined for two straight days as worries of Fed aggressiveness have diminished.

Following Fed Chair Jerome Powell's hints of "neutral rates," USD/CAD traders should have anticipated that the Flash readings of the US Q2 GDP, which established a "technical recession" by falling for the second consecutive quarter, would continue to plummet. In spite of this, the initial Q2 GDP estimates for the United States came in at -0.9 percent Annualized, compared to the predicted 0.5 percent and the previous -1.6 percent. In addition, the US Initial Jobless Claims increased by 253K more than anticipated to 256K during the week ending July 22.

Other US authorities, like Fed Chairman Powell and Treasury Secretary Janet Yellen, attempted to dismiss the "technical recession" after the US Q2 GDP declined for a second straight quarter and hinted at its existence. The same scrutiny is applied to the central bankers advocating for more rate rises to combat inflation. In addition, discussions between US Vice President Joe Biden and his Chinese counterpart Xi Jinping were largely successful and imposed downward pressure on the dollar's safe-haven demand.

S&P 500 Futures increase by 0.5 percentage points to levels around the highest since early June, while 10-year Treasury rates flirt with the lowest levels in three months.

Important for USD/CAD traders will be the Fed's favored inflation barometer, the Core Personal Consumption Expenditures (PCE) Price Index, which is predicted to rise 0.5% MoM in July compared to 0.3% in June. The headlines around oil prices and economic downturn will also be key.

Technical Evaluation

The USD/CAD pair's first daily close below the 100-day EMA since early June, in conjunction with the downbeat RSI (14) and bearish MACD indications, suggests additional losses. At the time of publication, 1.2790, a clean break below the declining support line from June 14 looks essential for bears.