USD/CAD approaches 1.3100, downside potential seems limited

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  • USD/CAD pulls back further from a multi-week high and is under pressure from a combination of factors.
  • The rally in crude prices underpins the loonie and sparks some selling amid a weaker dollar.
  • USD intraday selling accelerates after the release of monthly US employment data, which delivered mixed results.
  • Aggressive Fed expectations and recession fears limit USD losses and support the pair.

The pair USD/CAD extends its intraday decline and falls to the 1.3115-1.3110 zone, that is, a new daily low during the beginning of the American session. The pair pulls back further from the highest level since Jul 14 touched the previous day and for now they seem to have snapped a three day winning streak.

A good recovery in crude oil prices underpins the commodity-linked loonie. This coupled with a general weakness in the US dollar causes some selling around the USD/CAD pair on Friday. The dollar’s retreat from two-decade highs reached on Thursday accelerates after the publication of the monthly report on employment in the US, which is mixed. In addition, the intraday decline in US Treasury yields and the risk boost put additional downward pressure on the safe haven dollar.

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That said, a combination of factors should help limit deeper losses for the USD/CAD pair and warrant some caution before placing aggressive bearish bets. Investors remain concerned that a deeper global economic slowdown and a new COVID-19 lockdown will dent fuel demand, which should act as a headwind for crude prices. Aside from this, expectations that the Fed will continue its aggressive tightening policy should limit the dollar’s decline and support the pair.

Indeed, markets are still pricing in the possibility of a 75 basis point rate hike at the next FOMC monetary policy meeting on 20-21 September. This, in turn, favors the dollar bulls and supports the prospects for some buying around the USD/CAD pair. Therefore, it will be prudent to wait for a sharp decline before confirming that the recent strong move up over the past three weeks has run out and positioning for further losses.

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Technical levels

USD/CAD

Panorama
Last Price Today 1.3098
Today’s Daily Change -0.0057
Today’s Daily Change % -0.43
Today’s Daily Opening 1.3155
Trends
20 Daily SMA 1.2947
50 Daily SMA 1.2927
100 Daily SMA 1.2862
200 Daily SMA 1.2775
levels
Previous Daily High 1.3208
Previous Daily Minimum 1.3123
Previous Maximum Weekly 1.3063
Previous Weekly Minimum 1.2895
Monthly Prior Maximum 1.3141
Previous Monthly Minimum 1.2728
Daily Fibonacci 38.2% 1.3176
Daily Fibonacci 61.8% 1.3156
Daily Pivot Point S1 1.3116
Daily Pivot Point S2 1.3077
Daily Pivot Point S3 1.3032
Daily Pivot Point R1 1.3201
Daily Pivot Point R2 1.3247
Daily Pivot Point R3 1.3285

Source: Fx Street

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