Earlier today, Statistics Canada published the latest Consumer Price Index data for the month of October. According to the findings of the report, headline inflation rose by 0.4 per cent, which surpassed the market expectations for a marginal improvement of only 0.2 per cent.
This marks a sizable improvement on a monthly basis, given that consumer prices tumbled by 0.1 per cent in September. The observed performance speaks a lot about the ongoing recovery of the Canadian economy, especially in the context of plummeting prices south of the Canadian border.
The Canadian economy is still far away from reaching pre-pandemic output levels; however, the recorded inflation growth is welcoming news for the Bank of Canada. It means that the coronavirus fallout is having a lesser impact on the Canadian economic activity.
Moreover, today's economic findings come at a perfect time for the Canadian dollar, given the promising news concerning the development of a viable vaccine against the novel coronavirus.
The global stock market is still riding high on bolstered investors' enthusiasm, which is also having an adverse impact on the global demand for the greenback. Therefore, the value of the USDCAD is likely to suffer from all of these developments.
As can be seen on the 4H chart below, the pair is currently establishing a Flag pattern, which is taking the form of a descending channel. Unless it manages to form a decisive breakout above the major support (currently resistance) level at 1.31000 soon, the depreciation is likely to continue in the midterm.
On the one hand, the price action has consolidated above the 50-day MA (in green), which is good news for the market bulls. On the other, the strength of the 1.31000 level has already been confirmed on two separate occasions in the past, which decreases the likelihood of such a breakout taking place any time soon.
Moreover, the recent swing high was terminated just below the 100-day MA (in blue), which means that there is a very strong bearish sentiment above this floating resistance. Consequently, the pair is going to have a very difficult time ahead in continuing to head further north.