USD/CAD struggles to cheer US Dollar pullback near 1.3400 as Oil price retreats on demand fears

• USD/CAD reverses from 10-week high but lacks downside momentum.
• WTI crude oil prints mild gains while defending weekly trading range at four-month high.
• Risk appetite improves and allows US Dollar to better brace for inflation data.
• Fears of slower energy demand from China, US weigh Oil price.

USD/CAD prints mild losses around 1.3400 as it steps back from the highest level in 2.5 months marked the previous day. That said, the Loonie pair’s latest retreat could be linked to the market’s cautious optimism, as well as the preparations for the US inflation, not to forget the sluggish Oil Price.

An improvement in China’s Producer Price Index (PPI) for July contrasted with the downbeat Consumer Price Index (CPI) data for the said month to tame pessimism about the world’s biggest industrial players. Also improving the risk appetite is the news from the White House as the Biden Administration signals relief to China technology companies. “The US plans to target only those Chinese companies that get more than 50% of revenue from the sectors including quantum computing and artificial intelligence (AI),” said the news.

The absence of major risk aversion joins the downbeat US Treasury bond yields to help the US Dollar Index (DXY) reverse from a downward-sloping resistance line from May 31 while printing the first daily loss in three around 102.35, down 0.16% intraday.

On the other hand, WTI crude oil remains steady within the weekly trading range surrounding $82.00–83.00, down 0.05% intraday near $82.40 as we write. It’s worth noting that China’s inflation data and the trade-positive news from the White House fail to impress the energy buyers as the looming default of a major China realtor joins the US bank woes to challenge the OPEC+ supply cuts.

Amid these plays, S&P500 Futures recovers from the monthly low marked the previous day and prints mild gains around 4,525.

It should be noted that Italy’s surprise tax on windfall profits of banks joined the global rating agencies’ downward revision to the US banks and financial institutions to weigh on the risk sentiment the previous day. On the same line could be fears of the UK recession and slowing economic growth in China, not to forget the Dragon Nation’s geopolitical tension with the US and Japan about Taiwan. With this, the Wall Street benchmark closed with losses and the US Dollar rose, which in turn allowed the USD/CAD pair to refresh a multi-day high before the latest pullback.

Looking ahead, Canada Building Permits for June and the risk catalysts may entertain the USD/CAD pair traders ahead of the all-important US Consumer Price Index (CPI) data for July. The US CPI becomes all the more crucial this time after the mixed employment data and the policymakers’ recent hesitance in defending further rate hikes.

Technical analysis

Although a five-month-old descending resistance line joins the overbought RSI to underpin the USD/CAD pair’s retreat from 1.3430 hurdle, the Loonie pair sellers should remain cautious unless breaking the 200-Exponential Moving Average (EMA) level of 1.3360.