USD/CAD bulls take over to prevent a move to Apr 21 lows

• USD/CAD corrects latest downward push from lows.
• The bears seem to be moderating at 1.2458, which could be taken advantage of.

In 1.2552, the USD/CAD is up around 0.2% at the time of writing, recovering from fresh cyclical lows hit earlier in the day at 1.2517, as the US dollar returns to be the best performer against commodities in the US session so far.

DXY is up 0.17% to 102.50, trading between daily lows and highs of 102.269/102.776. US stocks fell in midday trading and the US 10-year bond auction hit a record high of 3.03% on Wednesday, up from 2.943% in the previous auction. We have seen a further rally in US yields with the 10-year bond now trading 1.54% higher on the day, supporting the dollar ahead of key macro events including the European Central Bank, data on Friday’s US inflation and Canadian central bank updates and employment data.

Canada’s employment report for May could help guide expectations about the pace of Bank of Canada interest rate hikes. However, the main topic will continue to be the end of the week with the Bank of Canada’s financial stability report, which is expected to shed light on the risks and vulnerabilities of the financial system. Analysts at TD Securities said they “do not expect any implications for the short-term political outlook.”

We will be watching for any new details on high leverage borrowers or mortgage delinquencies, but we expect a general message that the financial system remains resilient in an environment of rising interest rates.”

We will also hear from Governor Macklem on Thursday. Last week, the Bank of Canada raised its benchmark interest rate by half a percentage point for the second time in a row to deal with rising inflation. In this sense, Reuters reported that “prices in Canada are rising at their fastest pace in 31 years, but that is not yet fueling a wage spiral, Canada’s budget watchdog said on Tuesday, and it is still expected that inflation will return to target in the coming years.

USD/CAD technical analysis

The price is correcting the last downward push from the lows. However, there is still a price imbalance that the bears are trying to take advantage of up to the Apr 21 lows 1.2458 which could be exploited. That said, the price is heading towards a long-term support zone. Should the bulls commit to the correction, a breakout of resistance and if the 61.8% Fibonacci fails to attract supply, then there is prospect of a deeper correction towards 1.26 and possibly beyond.