USD / CAD cuts intraday gains, defensive around 1.2550

• A combination of factors did not help the USD / CAD capitalize on its modest intraday gains.
• Bullish oil prices propped up the loonie and limited gains amid dovish dollar demand.
• A sustained break below 1.2500 will set the stage for further weakness.

The USD / CAD pair reversed an initial bullish move in the North American session to the 1.2570-75 zone and was last seen trading near daily lows, just below 1.2550.

Crude trimmed a portion of its strong intraday gains and undermined commodity-linked loonie. This, in turn, provided a modest boost to the USD / CAD pair and was seen as a key factor behind the last stage of a sudden spike. That said, a subdued demand for the US dollar kept a grip on any significant gains.

Investors appeared to have brushed aside concerns about the economic fallout from the spread of the highly contagious delta variant of the coronavirus. This was evidenced by a new recovery in global risk sentiment, which continued to act as a headwind for the safe-haven dollar.

On the economic data front, weekly US jobless claims unexpectedly jumped to 419,000 for the week ended July 16 from the prior week’s upwardly revised reading of 368,000. This was seen as another factor that weighed on the dollar and limited the rise for the USD / CAD pair.

That said, it will still be prudent to wait for a strong follow-up sell before positioning for any further declines. Sustained weakness below the key psychological level of 1.2500 will suggest that the USD / CAD pair has a top and the stage has been set for a further corrective decline.

Technical levels to observe