USD / CAD remains defensive below 1.2750

• The recovery in oil prices sustained the Canadian dollar and acted as a headwind for the USD / CAD.
• A good recovery in US bond yields revived demand for USD and helped limit losses.
• The mixed fundamental background warrants some caution before placing aggressive bets.

The pair USD / CAD it traded on a negative bias during the first half of the European session, although it lacked continued selling and remained confined to a range below 1.2750.

The pair opened with a bearish gap on the first day of a new week and cut a portion of Friday’s strong gains to 1.2800, or the highest level since September 22. This, in turn, was seen as a key factor that acted as a headwind for the USD / CAD pair.

Meanwhile, views that Friday’s slide in global financial markets, sparked by concerns about the Omicron variant of the coronavirus, was overblown, led to a strong recovery in risk sentiment. The risk impulse led to a solid rally in US Treasury yields, reviving demand for the US dollar and helping to limit the decline in the USD / CAD pair.

That said, the latest nerves from COVID-19 could have forced investors to reassess the prospects for an early policy tightening by the Fed. This appeared to have prevented the USD bulls from making further bets and did not help the pair. USD / CAD to gain significant traction. The mixed fundamental background warrants the caution of aggressive traders.

Monday’s US economic calendar features pending home sales data figures later during the early days of the US session, though it could do little to boost momentum. Therefore, the focus will remain on the developments surrounding the coronavirus saga, which will play a key role in driving broader market risk sentiment and demand for the dollar as a safe haven.

Apart from this, the US bond yields will also influence the USD. Traders will follow the signs of oil price dynamics to seize some near-term opportunities around the USD / CAD pair.

Technical levels