USD/CAD pares intraday gains to over 2-week tops, still well bid around 1.2880 region

• A combination of supporting factors assisted USD/CAD to gain strong traction on Monday.
• Fresh COVID-19 jitters rattled the global financial markets and boosted the safe-haven USD.
• A sharp fall in crude oil prices undermined the loonie and remained supportive of the move.

The USD/CAD pair quickly retreated around 75 pips from two-and-half-week tops, albeit has still managed to hold with decent daily gains, around the 1.2880 region.

The pair built on the previous session’s positive move and gained some strong positive traction on the first day of a new trading week amid resurgent US dollar demand. The discovery of a new variant of the highly contagious coronavirus rattled global financial markets and forced investors to take refuge in the traditional safe-haven greenback.

Renewed coronavirus jitters fuelled worries over a slower recovery in fuel demand and led to a steep decline in crude oil prices. This, in turn, undermined demand for the commodity-linked loonie and provided an additional boost to the USD/CAD pair. However, a modest bounce in oil prices kept a lid on any further gains for the major.

Meanwhile, the anti-risk flow led to a sharp fall in the US Treasury bond yields. Apart from this, news that a deal had finally been struck on a long-awaited US stimulus bill further collaborated towards capping the upside for the USD/CAD pair, at least for the time being. That said, the technical set-up still seems tilted in favour of bulls.

The USD/CAD pair on Monday confirmed a near-term bullish breakout through the recent consolidative trading range held over the past one week or so. This, in turn, suggests that the pair has formed a strong base around 1.2700 round-figure mark and supports prospects for a further recovery from multi-year lows touched last week.

There isn’t any major market-moving economic data due for release on Monday, either from the US or Canada. Hence, developments surrounding the coronavirus saga will continue to play a dominant role in driving the sentiment surrounding the safe-haven USD. This, along with oil price dynamics, will also be looked upon for some trading opportunities.

Technical levels to watch