- A combination of factors helped USD/CAD regain strong positive traction on Monday.
- Falling oil prices weakened the loonie and extended support amid resurgence in dollar demand.
- The bulls could wait for a sustained move beyond the 1.3080-85 zone before making further bets.
The pair USD/CAD received aggressive offers on Monday and reversed much of the losses recorded in the last two sessions. The momentum pushed the pair back above the key psychological 1.3000 level during the first half of the European session and was fueled by a combination of factors.
Investors remain concerned that a potential global recession, coupled with the latest outbreak of COVID-19 in China, will hurt fuel demand. This, in turn, put some downward pressure on crude oil prices, undermining the commodity-linked loonie. Apart from this, the appearance of new purchases of US dollars provided a good boost to the USD/CAD pair.
From a technical point of view, the recent pullback from the strong horizontal hurdle of 1.3080-1.3085, or last week’s high, has stopped near the 100-period SMA on the 4-hour chart. Such support, currently around the 1.2940 area, should serve as a foothold for short-term traders ahead of this week’s key events and data.
The latest figures on US consumer inflation will be released on Wednesday, followed by the Bank of Canada’s monetary policy decision. Additionally, monthly US Retail Sales data and preliminary Michigan Consumer Sentiment will be released on Friday, which will weigh on the Dollar and give the USD/CAD pair a further boost.
Meanwhile, any further move higher is likely to face resistance near the 1.3065 area. However, the bulls could wait for a sustained breakout of the strong 1.3080-1.3085 barrier before positioning themselves for further gains. Follow-up buying beyond the 1.3100 round figure would mark a fresh breakout to the upside and pave the way for further gains.
The USD/CAD pair could try to break through an intermediate barrier near the 1.3155-1.3160 area and reclaim the 1.3200 mark. The momentum could extend further and eventually lift the pair to the next relevant resistance near the 1.3270 area.
On the other hand, the 1.2950-1.2945 zone could continue to protect the immediate downside. A convincing break below could spark some technical selling and drag the USD/CAD pair towards 1.2900. The latter should act as a strong base, which if broken would nullify any positive short-term outlook and shift the bias in favor of bearish traders.
USD/CAD 4-hour chart
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Technical levels
Source: Fx Street
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