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  • USD/CAD extended its sideways price action through the early European session on Tuesday.
  • A strong recovery in oil prices underpinned the loonie and kept a lid on any additional gains.
  • Rebounding US bond yields helped revive the USD demand and helped limit the downside.

The USD/CAD pair consolidated its recent gains to multi-year tops and was seen oscillating in a narrow trading band, just below the 1.40 round-figure mark.

A combination of diverging forces failed to provide any meaningful impetus and led to the pair’s subdued/range-bound price action through the early European session on Tuesday. A strong recovery in crude oil prices, gaining nearly 5.5% for the day, dented demand for the commodity-linked currency – the loonie and turned out to be one of the factors capping gains.

Traders await a fresh catalyst

The negative factor, to a larger extent, was negated by a goodish pickup in the US dollar demand, which continued lending some support to the major and helped limit any meaningful slide. As investors looked past the Fed’s aggressive move to cut interest rates and introduce a massive bond-buying program, a solid rebound in US Treasury bond yields underpinned the USD demand.

Given the pair’s recent strong gains, the price action might still be categorized as a consolidation phase as investors await a fresh catalyst before positioning for the next leg of a directional move. Hence, it will be prudent to wait for some strong follow-through selling before confirming that the pair might have already topped out, which might set the stage for some profit-taking slide.

Moving ahead, market participants now look forward to the US economic docket – highlighting the release of monthly retail sales figures – in order to grab some short-term trading opportunities.

Technical levels to watch