USD/CAD corrects farther from 19-month tops, nearing 1.3600 handle

   “¢   The USD bulls remain on the defensive and prompt some long-unwinding trade.
   “¢   A modest recovery in oil prices underpin Loonie and add to the selling pressure.

The USD/CAD pair traded with a mild negative bias through the early European trading session and retreated farther from 19-month tops, set on Friday.

A combination of negative factors – ranging from the prevalent US Dollar selling bias and a modest rebound in crude oil prices, seemed to have prompted some long-unwinding trade at the start of a new trading week.

The USD struggled to build on/preserve early modest recovery gains and remained on the defensive amid expectations of a dovish Fed next year and the partial US government shutdown.

Meanwhile, oil prices recovered after hitting the lowest level in 18-month lows last week and remained supported by Friday’s Baker Hughes report, showing that Canada slashed 43 oil rigs as of Dec. 28.

Market sentiment was also lifted up by some positive news in the ongoing US-China trade negotiations, which underpinned demand for the commodity-linked Loonie and exerted some additional downward pressure.

Despite the pull-back, the pair has managed to hold its neck above the 1.3600 handle as traders seemed to refrain from placing any aggressive bids amid relatively thin liquidity conditions on the New Year’s Eve.

Hence, it would be prudent to wait for a strong follow-through selling/long-unwinding pressure before confirming that the pair might have already set a near-term top around the 1.3660 region.  

Technical levels to watch

A follow-through retracement below the 1.3600 handle is likely to accelerate the fall towards the 1.3565 horizontal support, below which the pair might drift back towards testing the key 1.3500 psychological mark.

On the flip side, the 1.3640-60 region might continue to act as an immediate strong resistance, which if cleared should pave the way for an extension of the positive momentum towards reclaiming the 1.3700 handle.