USD/CAD clings to modest gains near session tops, just below 1.3300 mark

• A combination of factors assisted USD/CAD to stage a modest bounce from multi-month lows.
• The USD reversed an early dip to fresh two-year lows and extended some support to the pair.
• Weaker crude oil prices undermined the loonie and remained supportive of the intraday uptick.

The USD/CAD pair rallied around 40 pips during the early European session and refreshed daily tops, around the 1.3285 region in the last hour.

Following an early dip to the 1.3245 region, the pair managed to regain some traction and for now, seems to have stalled its recent bearish slide to the lowest level since February 2020. The uptick marked the first day of a positive in the previous four and was supported by a combination of factors – a modest US dollar rebound and a softer tone surrounding crude oil prices.

Extremely oversold conditions assisted the USD to reverse an early dip to new two-year lows, though the upside is likely to remain capped amid concerns about the pace of the US economic recovery. The market worries were further fueled by Wednesday’s disappointing ADP report on the US private-sector employment, which indicated that the labour market recovery was faltering.

This coupled with the deadlock in the US Congress over the next round of fiscal stimulus measures might hold the USD bulls from placing any aggressive bets. Both Republicans and Democrats harden their stances on the new coronavirus relief plan, raising doubts as to whether the lawmakers will reach an agreement before the end-of-week deadline.

Adding to this, the ongoing downfall in the US Treasury bond yields might further collaborate towards keeping a lid on the attempted USD rebound, at least for the time being. Meanwhile, a pullback in crude oil prices, now down around 1% for the day, undermined the commodity-linked currency – the loonie – and remained supportive of the USD/CAD pair’s modest uptick.

It will now be interesting to see if bulls are able to capitalize on the recovery move or the pair meets with some fresh supply at higher levels. Later during the early North American session, the release of the Initial Weekly Jobless Claims data from the US will now be looked upon for some short-term trading opportunities.

Technical levels to watch