USD/CAD recovers from the Canadian inflation related fall, trading around C$1.2660

• The USD/CAD is trading steadily around C$1.2660 as the trading week draws to a close. 
• The pair dropped sharply earlier as Canadian inflation came out above expectations.
• US bond yields are set to guide the pair into the close.

The USD/CAD is trading on higher ground, at around $1.2660 as the trading week draws to a close. The pair recovered from the lows of $1.2613 it had dropped to earlier. Canada reported inflation rising by 0.7% MoM and 1.7% YoY,  better than 0.4% MoM and 1.4% YoY that had been expected. Core CPI remained unchanged at 1.2% YoY. 

The pair dropped sharply in the immediate aftermath but recovered quickly. We have seen a similar reaction on Thursday when Canadian retail sales severely disappointed with a drop of 0.8%, far worse than a rise that had been on the cards. The pair jumped swiftly but reversed its gains within a short period. 

Prices of oil increased, but the Canadian dollar did not react. The nation's primary export rose to above $63.34 on WTI Crude Oil amid a potential outage in Libya and a larger than expected drawdown of oil inventories in the US.

In the US, the Federal Reserve published its semi-annual Monetary Policy Report which stressed a gradual pace of rate hikes, not deviating from the previous message conveyed by the Fed. Fed Chair Jerome Powell will testify on Capitol Hill next week.

The slide in US bond yields weighs on the US Dollar and limits the pair's gains. Towards the close, this is the primary driver. Benchmark 10-year yields slipped to 2.87% from 4-year highs earlier this week.

USD/CAD technical levels

The high of the day at $1.2725 capped the pair and is the immediate level of resistance. The weekly high of $1.2751 is close by. The triple-top of $1.2920 is next.

Looking down, the post-inflation report low of $1.2653 is the immediate line, followed by $1.2613. The next line of support is $1.2590.