USD/CAD flirts with session lows around 1.2820-15 region, downside seems limited

• USD/CAD witnessed some selling on Tuesday and eroded a part of the overnight strong gains.
• The upbeat market mood was seen weighing on the safe-haven USD and exerting pressure.
• A goodish pickup in oil prices underpinned the loonie and contributed to the intraday downfall.

The USD/CAD pair traded with a negative bias through the early European session and was last seen hovering near the lower end of its daily range, around 1.2820-15 region.

A combination of factors failed to assist the pair to capitalize on the previous day’s strong positive move, instead prompted some selling during the first half of the trading action on Tuesday. The upbeat market mood – as depicted by a positive tone around the equity markets – weighed on the safe-haven US dollar. Adding to this, a goodish pickup in crude oil prices underpinned the commodity-linked loonie and exerted some pressure on the USD/CAD pair.

Democrat lawmakers filed the $1.9 trillion budget measure to bypass Republicans and get the measure passed in Congress. The move revived hopes for a strong global economic recovery, which, in turn, boosted investors’ appetite for perceived riskier assets. This further lifted expectations for fuel demand recovery and pushed oil prices to over two weeks tops. In fact, WTI crude gained over 1% for the day and moved back above the $54.00 mark.

Meanwhile, renewed optimism about additional US fiscal stimulus pushed the US Treasury bond yields higher. This was seen as a key factor that helped limit any deeper losses for the greenback and extended some support to the USD/CAD pair, at least for the time being. That said, some follow-through selling will indicate that the recent bounce from multi-year lows might have already run out of the steam and set the stage for further weakness.

From a technical perspective, the USD/CAD pair last week confirmed a bullish breakout through a falling wedge chart pattern. The set-up favours bullish traders and supports prospects for additional gains. Hence, any subsequent decline might be seen as a buying opportunity and remain limited amid absent relevant market-moving economic releases.

Technical levels to watch