The USD/CAD pair came under some selling pressure on Monday, extending Friday’s retracement slide. Rebounding Oil prices underpinned the Loonie and exerted pressure amid subdued USD price action. Recession fears and hawkish Fed expectations could limit the USD losses and lend support to the pair.
Spot prices retreated further from the highest level since January 6 touched on Friday and dropped to the 1.3455 area, or a fresh daily low in the last hour. Crude Oil prices gained some positive traction and for now, seemed to have snapped a five-day losing streak to a one-week low touched on Friday. This, in turn, supported the commodity-linked Loonie and acted as a headwind for the USD/CAD pair amid subdued US Dollar price action.
However, worries that rapidly rising borrowing costs will dampen economic growth and dent fuel demand should keep a lid on any further upside for the black liquid. Apart from this, firming expectations that the Federal Reserve will stick to its hawkish stance favored the USD bulls. In fact, the markets were pricing in at least a 25 bps lift-off at the next two FOMC meetings in March and May. This, in turn, validated the positive outlook for the USD/CAD pair.
Traders seemed reluctant amid relatively thin trading volumes on the back of a holiday in the US and Canada. Furthermore, investors were more likely to wait for the latest FOMC meeting minutes, due for release on Wednesday, before placing fresh directional bets. Hence, strong follow-through selling was needed to confirm that the USD/CAD pair’s recent positive move witnessed over the past week or so had run its course.
From a technical standpoint, the pair needs to break below the 1.3440-35 region to confirm a near-term bearish break and accelerate the slide towards the 1.3400 round-figure mark. Some follow-through selling below the mentioned support could drag the pair further towards the 1.3350-45 region en-route the 1.3300 round-figure mark.
On the flip side, the 1.3500 handle now seems to have emerged as an immediate resistance. A sustained move beyond might negate the bearish bias and lift the pair further towards the 1.3545-50 intermediate resistance. Some follow-through buying beyond the mentioned barrier could pave the way for additional gains towards the 1.3600 mark.
Overall, the USD/CAD pair seems to have entered a bearish consolidation phase and any subsequent move will mainly be determined by oil prices and the broader market risk sentiment. That said, any meaningful up-move is likely to remain capped near the mentioned resistance levels.
In conclusion, the USD/CAD pair came under some selling pressure on Monday and extended Friday’s retracement slide. Rebounding Oil prices underpinned the Loonie and exerted pressure amid subdued USD price action. Recession fears and hawkish Fed expectations could limit the USD losses and lend support to the pair. From a technical standpoint, the pair needs to break below the 1.3440-35 region to confirm a near-term bearish break and accelerate the slide towards the 1.3400 round-figure mark. On the flip side, the 1.3500 handle now seems to have emerged as an immediate resistance. A sustained move beyond might negate the bearish bias and lift the pair further towards the 1.3545-50 intermediate resistance. Overall, any subsequent move will mainly be determined by oil prices and the broader market risk sentiment.
