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  • Retreating US bond yields weighed on the USD and prompted some selling around USD/CAD.
  • An intraday pullback in crude oil prices undermined the loonie and helped limit the downside.
  • Neutral technical indicators warrant caution before placing any aggressive directional bets.

The USD/CAD pair witnessed some fresh selling on Tuesday and dropped to three-day lows, albeit showed some resilience below the 1.2600 mark. The pair managed to recover around 25-30 pips from daily lows and was last seen trading around the 1.2620 region, down around 0.35% for the day.  A sharp pullback in the US Treasury bond yields prompted traders to lighten their US dollar bullish positions and exerted some pressure on the USD/CAD pair. However, intraday slide in crude oil prices undermined the commodity-linked loonie and helped limit any further losses for the major.

From a technical perspective, a break below 200-hour SMA was seen as a key trigger for bearish traders and dragged the USD/CAD pair to the lower end of a two-week-old trading range. That said, the emergence of some dip-buying warrants some caution before positioning for any further decline.  Meanwhile, neutral technical indicators on hourly/daily charts – though have been recovering from the negative territory – haven’t been supportive of any firm direction. This makes it prudent to wait for a convincing break through the mentioned range to confirm the near-term trajectory.

In the meantime, the 1.2600-1.2590 region might continue to protect the immediate downside and is closely followed by support near the 1.2575 region. Sustained weakness below might now turn the USD/CAD pair vulnerable to accelerate the slide towards the key 1.2500 psychological mark.  On the flip side, any meaningful recovery is likely to confront resistance near mid-1.2600s. Some follow-through buying might assist bulls to make a fresh attempt to reclaim the 1.2700 mark. Above the mentioned barriers, the USD/CAD pair could aim back to challenge the 1.2740-50 supply zone.

USD/CAD 1-hourly chart

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Technical levels to watch