- USD / CAD saw some selling on Wednesday and trimmed some of the strong gains overnight.
- The setup still favors bullish traders and supports the prospects for a further appreciation move.
- Investors look forward to the FOMC June Policy Meeting Minutes for new directional momentum.
The pair USD / CAD it maintained its offered tone during the middle of the European session and fell to new daily lows, around the 1.2425 region in the last hour.
Expectations that the Fed will maintain its ultra-flexible policy stance for a longer period did not help the US dollar capitalize on the good overnight intraday move. This, in turn, was seen as a key factor that put some downward pressure on the USD / CAD pair.
That said, a softer tone around crude oil prices undermined the commodity-pegged Canadian dollar and should help limit any deeper losses for the USD / CAD pair. Investors could also refrain from aggressive betting ahead of the release of the minutes of the FOMC meeting on Wednesday.
From a technical perspective, the USD / CAD pair has now eroded a portion of the previous day’s strong gains of nearly 200 pips from around 1.2300. The momentum helped the pair break a downtrend line that extends from the yearly highs hit in January.
The constructive setup is reinforced by the fact that the technical indicators on the daily chart remain in bullish territory and are still far from being in the overbought zone. That said, the failure near the 1.2500 psychological level warrants caution for bull traders.
Therefore, it will be prudent to wait for some subsequent buying beyond the aforementioned level before positioning for an extension of the recent recovery move from the lowest level since May 2015. The USD / CAD pair could then aim to overcome an intermediate hurdle nearby. the 1.2545-50 zone.
The momentum could extend and allow bullish traders to push the USD / CAD pair further towards the 1.2600 level recovery. The next relevant barrier is pegged near the 1.2640-50 bid zone, which if decisively removed will be seen as a new trigger for bull traders.
On the other hand, any subsequent decline could still be seen as a buying opportunity near 1.2400. This is closely followed by the 100-day SMA support, currently near the 1.2380 region, which should now act as a key point for short-term traders.
Sustained weakness below will negate the positive outlook and lead to some technical selling. The USD / CAD pair could slide towards the 1.2320-15 support area before 1.2300. Some subsequent selling could make the pair vulnerable to retest the 1.2250 support area.
Daily chart
Technical levels
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