**Technical Analysis Overview** The USD/CAD pair is holding steady just below the 1.3900 level as traders wait for the US Consumer Price Index (CPI) report. A slight uptick in the US Dollar is helping support spot prices, while worries about the Federal Reserve’s independence are limiting major gains. At the same time, rising Crude Oil prices are strengthening the Canadian Dollar, which creates resistance for the USD/CAD pair. Currently, the pair is trading within a narrow range without a clear intraday direction. Traders are focusing on the upcoming US inflation data, including the CPI today and the Producer Price Index tomorrow. Although the US Dollar has faced losses recently, it is gaining some positive momentum. However, higher Crude Oil prices are putting additional pressure on the USD/CAD pair. From a technical standpoint, the USD/CAD trades below the 50-day Simple Moving Average (SMA), indicating a bearish trend. This SMA is capped around 1.3890, preventing any significant rebounds. The MACD line is still positive but suggests slowing momentum. The RSI stands at 59, just above the midline, indicating a mild bullish sentiment. Key Fibonacci retracement levels at 50% and 61.8% are acting as resistance. A daily close above 1.3948 could signal further gains, but movements remain limited by the declining SMA and these Fibonacci levels. **CPI Impact On The Market** The CPI tracks inflation by assessing the prices of a basket of goods, with monthly updates provided by the US Bureau of Labor Statistics. It is a key indicator of economic trends; higher readings tend to benefit the US Dollar. The next CPI release is set for January 2026, and analysts expect it to remain steady at 2.7%. This index is crucial for guiding the Federal Reserve’s monetary policy, particularly during ongoing supply-chain issues. All eyes are on today’s US CPI release, as the USD/CAD pair remains stalled below the 1.3900 level. The market anticipates a 2.7% reading, similar to last month, indicating persistent inflation. Any departure from this figure could lead to significant market movement in the coming days. If inflation exceeds expectations, the Federal Reserve may have to take action, maintaining their hawkish position throughout much of 2025. This scenario would likely push the US dollar higher and challenge the important 1.3948 resistance level. Traders in derivatives might look to purchase call options to take advantage of a potential breakout above this threshold. On the other hand, a CPI reading below 2.7% could signal that inflation is finally easing, weakening the US dollar’s strength. Firm crude oil prices add to this situation, as WTI has been holding above $85 a barrel after OPEC+ confirmed production cuts late last year. In this case, we could see a rejection from resistance, making put options or short futures attractive strategies. We experienced a similar situation in October 2025 when an unexpected inflation report triggered a sharp 150-pip move within hours. Given this history, traders should prepare for increased volatility immediately following today’s release at 13:30. Strategies such as straddles or strangles could be beneficial for trading the anticipated price swing without committing to a specific direction. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now