USD/CAD stays in the red below 1.2600 after Canada inflation data

• USD/CAD continues to fluctuate in a tight range on Wednesday.
• Annual inflation in Canada softened to 3.1% in June.
• US Dollar Index holds above 92.60 as focus shifts to FOMC.

After dropping to 1.2560 area during the European trading hours, the USD/CAD pair staged a modest recovery in the early American session. As of writing, the pair was trading at 1.2386, still losing 0.12% on a daily basis.

Investors ignore Canada CPI data

Earlier in the session, the data published by Statistics Canada revealed that inflation, as measured by the Consumer Price Index (CPI), declined to 3.1% in June from 3.6% in May. Additionally, the Bank of Canada's (BoC) Core CPI inched lower to 2.7% on a yearly basis from 2.8%. 

Ahead of the FOMC's policy announcements, however, USD/CAD showed little to no reaction to the inflation data. Meanwhile, the US Dollar Index is posting modest daily gains at 92.64, not allowing the pair to turn south. The 1.7% increase seen in the benchmark 10-year US Treasury bond yield on Wednesday seems to be helping the greenback stay resilient against its rivals.

Previewing the FOMC's July policy meeting, "tapering is not a question of if, but when – and the timing of the Federal Reserve's announcement to create fewer dollars may have to wait longer," said FXStreet analyst Yohay Elam. "The world's most powerful central bank has been buying bonds at a rate of $120 billion/month for over a year, and economic improvement has implied it could withdraw some support. However, that could take more time, pushing the dollar down and allowing other currencies to rally alongside stock markets."

Technical levels to watch for