- USD/CAD falls off its one-month high after the release of Canadian retail sales.
- Weakening oil prices could undermine the loonie and offer support amid a stronger dollar.
- The technical set-up favors bullish traders and supports prospects for further short-term gains.
The pair USD/CAD rises to a one-month high during the early North American session, though struggles to capitalize on the move beyond the key psychological 1.3000 level. The pair trims some of its intraday gains and is currently hovering around the 1.2980-1.2975 area, still up more than 0.20% on the day.
Good Canadian Retail Sales figures for June offer some support to the local currency and act as a headwind for the pair. However, the weaker tone in oil prices should limit any significant rise in the commodity-linked loonie. On the other hand, the current rally in the US dollar, which has reached its highest level since mid-July, favors bullish traders and supports the prospects for further appreciation of the USD/CAD pair.
From a technical point of view, the overnight move beyond the 1.2980-1.2985 barrier, which coincided with the 50% Fibonacci level of the July-August decline, adds credence to the positive outlook. Furthermore, the oscillators on the daily chart have just entered bullish territory. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the upside and buying on the dips is likely.
However, traders could wait for the strength to sustain beyond 1.3000 before making further bullish bets. The USD/CAD pair could then rally to the 61.8% Fibonacci level around the 1.3035 area and extend momentum towards the next relevant hurdle near the 1.3080 area. Follow-up buying, leading to a further move above 1.3100, would mark a fresh break and pave the way for further gains.
On the other hand, the resistance breakout point of 1.2930-1.2920 (38.2% Fibonacci level) seems to protect the immediate downside ahead of the 1.2900 round figure mark. Any further decline is more likely to find decent support and is capped near 23.6%, around the 1.2845-1.2840 region. Failure to defend such a support level would negate any short-term positive bias and the USD/CAD pair would be vulnerable to further decline.
The downward trajectory could drag spot prices down to the 1.2800 mark en route to the all-important 200 DMA support, currently near the 1.2755 region. Next is the monthly low, around the 1.2730-1.2725 area, which should act as a turning point. A convincing break below would be seen as a new trigger for the bears.
USD/CAD daily chart
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Technical levels
Source: Fx Street
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