- A combination of factors helped the USD / CAD make a modest recovery from nearly four-year lows.
- The oversold RSI on the daily chart seemed to be the only factor that triggered some short hedging.
- The technical setup still favors bearish traders and supports prospects for further weakness.
The pair USD / CAD it rose during the early days of the American session and updated the daily highs around the 1.2125 region in the last hour, although it lacked tracking.
The drop in crude oil prices, which is now down more than 1.30% on the day, undermined the commodity-linked Canadian dollar and extended some support to the USD / CAD pair. On the other hand, a modest rally in US Treasury yields extended some support to the US dollar. Aside from this, a sharp drop in equity markets further benefited the dollar’s relative safe-haven status against its Canadian counterpart.
From a technical perspective, the oversold RSI on the daily chart was considered a key factor that triggered a short hedging move and helped the USD / CAD pair break four days of the losing streak. That said, last week’s sustained break below a multi-month downtrend channel supports the prospects for a well-established downtrend extension. This suggests that the recovery attempt could quickly fail.
Therefore, any subsequent positive move towards the 1.2145-50 region could be seen as an opportunity to initiate new bearish positions. This, in turn, should limit the USD / CAD pair near the break point of the aforementioned trend channel support, now turned into resistance near 1.2200. The level mentioned now should act as a key point for short-term traders and help determine the short-term trajectory.
On the other hand, the 1.2100 mark now appears to protect the immediate low before the 1.2080-75 region, or near the four-year lows touched on Monday. This is closely followed by the September 2017 lows, around the 1.2060 region, which if decisively broken should pave the way for further weakness. The USD / CAD pair could become vulnerable and accelerate the slide to challenge the key psychological 1.2000 mark.
Daily chart
Technical levels
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