- A combination of factors triggered new selling around USD / CAD on Tuesday.
- The decline has now dragged the pair to the support of the downtrend channel.
- Slightly oversold conditions warrant caution before placing new bearish bets.
The pair USD / CAD it continued to lose ground during the first half of the European session and fell to the 1.2320 area, or 3-month lows in the last hour.
The dominant mood of risk appetite in financial markets sparked aggressive selling around the safe-haven US dollar, which fell to three-week lows on Tuesday. On the contrary, a further rise in crude prices sustained the Canadian dollar pegged to commodities and put some downward pressure on the USD / CAD pair.
From a technical perspective, the pair has been trending down along a downward sloping channel from the September monthly swing highs around 1.2900. The bears could now wait for a sustained breakout through the channel support before placing new bets amid short-term oversold conditions.
A convincing break below the trend channel support, currently around the 1.2325 region, will set the stage for an extension of the depreciation movement. The USD / CAD pair could become vulnerable to break below 1.2300 and accelerate the decline towards the next relevant support near 1.2250.
On the other hand, any attempt at a recovery move now could face immediate resistance near the 1.2370-75 region. This is closely followed by the overnight swing highs, around the 1.2400-1.2410 area, which if decisively breached could trigger a short-term hedging move around the USD / CAD pair.
That being said, any subsequent bullish movement could still be seen as a selling opportunity and risks rapidly fading near the key psychological 1.2500 level. The latter represents a confluence barrier comprising the very important 200-day SMA and the upper end of the aforementioned channel.