USD/CAD bounces off 1-week low, finds some support near 1.3900 mark

• A combination of factors exerted some follow-through pressure on USD/CAD.
• Encouraging reports on virus vaccine dented demand for the safe-haven USD.
• Positive oil prices underpinned the loonie and further weighed on the major.
• A sustained break below 1.3900 mark needed to confirm a fresh bearish break.

The USD/CAD pair dropped to over one-week lows in the last hour, albeit managed to find some support just ahead of the 1.3900 round-figure mark. The pair quickly recovered around 30-35 pips and was last seen trading nearly unchanged for the day, just below mid-1.3900s.

The pair added to the previous session’s heavy losses and remained depressed through the Asian session on Tuesday. The US dollar extended its retracement from three-week tops set last Friday and witnessed some follow-through selling amid the latest optimism over encouraging data on coronavirus vaccine trial.

It is worth recalling that the US drugmaker Moderna reported positive results for its potential COVID-19 vaccine on Monday. This, in turn, provided a strong boost to investors’ appetite for perceived riskier assets and weighed heavily on the greenback’s perceived safe-haven status against its major counterparts.

This coupled with a positive tone surrounding crude oil prices underpinned demand for the commodity-linked currency – the loonie – and further contributed to the pair’s downtick. Oil prices remained well supported by signs of gradual demand recovery on the back of easing lockdown restrictions in some parts of the world.

Meanwhile, fears about the second wave of coronavirus pandemic and worsening US-China relations extended some support to the greenback. This eventually turned out to be one of the key factors that attracted some dip-buying and helped limit deeper losses for the USD/CAD pair, at least for the time being.

Moving ahead, market participants now look forward to the release of US housing market data – Building Permits and Housing Starts – for a fresh impetus. This coupled with the Fed Chair Jerome Powell and the US Treasury Secretary Steven Mnuchin’s congressional testimony might produce some meaningful trading opportunities.

Technical levels to watch