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USD / CAD recovers to 1-month highs, rapidly approaching 1.3400

  • Resurgent USD demand helped USD / CAD rally around 100 pips from daily lows.
  • The USD held high following the release of a stronger than expected US GDP report.
  • The fall in oil prices undermined the Canadian dollar.

The pair USD / CAD it rallied around 100 pips from daily lows and spiked to nearly a month high around the 1.3375-80 region during the early days of the American session.

After an initial drop to the 1.3280-75 region, the pair witnessed a sea change and was supported by a combination of factors. The US dollar was in demand again amid growing market concerns about the possible economic impact of a new restriction to curb the second wave of coronavirus infections.

USD bulls did not appear to be affected by uncertainty about the outcome of the US presidential election next week, instead following the signals from the stronger-than-expected US GDP report. According to advance estimates, the US economy expanded at an annualized rate of 33.1% during the third quarter of 2020 compared to an expected growth of 31%.

Aside from this, a sharp drop in crude oil prices undermined demand for the commodity-linked currency – the Canadian dollar, and provided additional boost to the USD / CAD pair. This, coupled with the chances of some short-term trading stops to trigger above the swing highs overnight around the 1.3335 region, further contributed to the strong momentum.

Meanwhile, technical indicators on the hourly charts already show extreme overbought conditions. Therefore, any subsequent bullish movement is more likely to face strong resistance near the 1.3410-15 supply zone. That said, some subsequent buying should pave the way for an extension of the bullish trajectory further towards the key psychological level 1.3500.

Credits: Forex Street

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