USD / CAD clings to modest recovery gains but still capped below the 1.3100 level

• USD / CAD registers a modest bounce on Friday and breaks four consecutive days of declines.
• A modest pullback in US stock index futures benefits the safe-haven USD and supports the pair’s upward move.
• The continuing drop in oil prices weighs on the CAD and provides an additional boost to the pair.
• Investors are now looking forward to US and Canadian employment reports and US political developments for fresh momentum.

The pair USD / CAD manages to gain some positive traction on the last day of the week and recovers a portion of the previous day’s losses to lows of more than two months. At the time of writing, the pair is still slightly capped up below the 1.3100 level.

A combination of support factors has helped the pair stop its recent downward movement and has drawn some buying near the 1.3030-25 region, breaking through four consecutive days of declines. As investors await the final outcome of the exciting US presidential election, a modest pullback in US stock index futures has benefited the safe-haven US dollar.

Although the markets are betting that the Democratic candidate Joe Biden to become the next president of the United States, the fact that Republicans will retain control of the Senate has lowered hopes for large fiscal stimulus packages. This comes amid the uncertain political situation in the US, which has weighed on investor sentiment and triggered some safe haven flows to the USD.

On the other hand, growing concerns that renewed lockdown measures to contain the increase in the number of coronavirus cases could affect global demand for fuel has weighed on crude oil prices. In fact, WTI futures fell about 2.5% during the first part of trading action on Friday, which has weighed on the Canadian dollar, a currency pegged to commodity prices, and continued to support the rally in USD / CAD pair.

Having said that, The pair confirmed a short-term bearish break below the two-month uptrend line support on Thursday. Therefore, the recovery attempt runs the risk of fading quite quickly. This makes it prudent to wait for a solid continuation of buying before positioning for any further bullish movement in the USD / CAD pair.

The market’s attention now shifts to the monthly employment reports for the United States and Canada. The US NFP report, along with political developments in the country, will play a key role in influencing USD price dynamics and generating some significant trading opportunities at the start of the American session.