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USD / CAD with modest gains below 1.2650, rally appears limited

  • USD / CAD is moving higher on Thursday and recovers a portion of the previous day’s losses.
  • A combination of factors can act as a headwind and limit the rise in torque.
  • Investors are now waiting for US data for a new trade boost.

The pair USD / CAD has moved with a slight positive bias during the European session on Thursday, staying close to the daily highs capped just below the 1.2650 region.

The pair has managed to gain some positive traction on Thursday and has recovered a portion of the previous day’s retracement drop from multi-day highs just above 1.2700. The rally has lacked any obvious fundamental catalyst and risks ending rather quickly, warranting some caution for the pair’s bulls.

The softer US CPI report raised uncertainty about the likely timing of the downsizing plan from the Fed and kept the US dollar bulls on the defensive during the early part of the trading action. Secondly, bullish crude prices could continue to prop up the CAD, currency linked to commodity prices, and act as a headwind for the USD / CAD pair.

The Oil prices have consolidated the strong gains of the previous day to the highest level since August 2 and they have been well supported by a larger-than-expected reduction in US fuel reserves. The US Energy Information Administration reported Wednesday that crude inventories fell by 6.4 million barrels in the week through September 10.

The fundamental backdrop favors the bears and supports the prospects for further losses. Having said that, Investors still believe the Fed could begin reversing its massive pandemic-era stimulus later this year, despite signs of easing inflationary pressure in the United States. This seems to be the only factor weighing down support for the USD / CAD pair.

However, it remains to be seen if the bulls are able to capitalize on the move as the focus of attention now shifts to the release of important US macroeconomic data. On Thursday’s economic calendar in the United States, the publication of monthly retail sales, the Philadelphia Fed manufacturing index and the usual initial weekly unemployment claims at the beginning of the American session stand out.

The data could influence the USD, which together with the oil price dynamics could generate some short-term trading opportunities around the USD / CAD pair.

USD / CAD technical levels

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