USD/CAD Price Analysis: At make or a break below 1.3400

• USD/CAD consolidates below 1.3400 as investors await the US Inflation data.
• Bets in favour of rate cuts from the Fed in March may deepen if the US CPI report turns out sticky.
• USD/CAD reflects a volatility contraction pattern formation.

The USD/CAD pair falls slightly to near 1.370 after failing to sustain above the round-level resistance of 1.3400. The Loonie asset demonstrates a sheer consolidation as investors shift focus towards the United States inflation data for December, which will be published on Thursday.

S&P500 futures struggle to hold gains as market mood remains cautious. The US Dollar Index (DXY) drops to near 102.44 despite persistent uncertainty over rate cuts by the Federal Reserve (Fed). 10-year US Treasury yields have slipped slightly below 4.0%.

Investors will keenly watch the US inflation data as it will provide fresh cues about likely rate cuts by the Federal reserve (Fed) in March. According to the estimates, the headline inflation rose by 0.2% against 0.1% growth in November. The annual headline Consumer Price Index (CPI) grew by 3.2% from 3.1% increase a month ago.

Meanwhile, core inflation grew steadily on a monthly basis. The annual core CPI data decelerated to 3.8% against the former reading of 4.0%.

USD/CAD struggles for a direction amid formation of a volatility contraction pattern on an hourly scale near 1.3400. A sharp decline in volatility indicates indecisiveness among market participants amid absence of a potential trigger. Horizontal resistance plotted from December 15 high around 1.3405 continues to act as barricade for US Dollar bulls.

The 50-period Exponential Moving Average (EMA) around 1.3380 continues to provide support to the US Dollar.

The Relative Strength Index (RSI) (14) oscillates in a 40.00-60.00 range, which indicates a consolidation ahead.

Fresh upside would appear if the Loonie asset breaks above January 9 high of 1.3415. This would open upside towards December 3 low at 1.3480, followed by December 5 low at 1.3540.

On the flip side, a downside move below January 5 low at 1.3288 would expose the asset to December 22 low at 1.3220. Breach of the latter would build more pressure on the asset and will drag it towards December 27 low at 1.3177.

USD/CAD hourly chart