USD/CAD refreshes session tops, eyeing a move beyond 1.2700 mark

• A combination of factors prompted some short-covering move around USD/CAD on Friday.
• A sharp pullback in the equity markets benefitted the safe-haven USD and exerted pressure.
• Sliding crude oil prices undermined the loonie and further contributed to the positive move.

The USD/CAD pair refreshed daily tops in the last hour, with bulls now looking to build on the momentum further beyond the 1.2700 round-figure mark.

Having shown some resilience below the 1.2600 round-figure mark, or multi-year lows, the pair witnessed some short-covering move on Friday and was supported by a combination of factors. A sharp pullback in the equity markets extended some support to the safe-haven US dollar, while a weaker tone surrounding crude oil prices undermined the commodity-linked loonie.

The imposition of a partial lockdown in China’s capital city of Beijing resurfaced market concerns about the potential economic fallout from the ever-increasing coronavirus cases. This, in turn, dented the global risk sentiment and prompted investors to take some profits off the table, especially after the recent bullish run in the equity markets.

On the other hand, the ongoing retracement in crude oil prices, now down around 2.0% for the day, weighed on the Canadian dollar and provided an additional boost to the USD/CAD pair. In fact, WTI retreated further from 11-month highs amid renewed worries about recovery in fuel demand. Apart from this, the commodity was pressured by Wednesday’s data, which showed that US crude oil inventories surprisingly increased 2.6 million barrels last week.

From a technical perspective, the USD/CAD pair was last seen flirting with 200-hour SMA. A sustained move beyond might trigger a fresh wave of the short-covering move and push the pair back towards a two-month-old descending trend-line resistance, around the 1.2765-70 region.

market participants now look forward to Friday’s economic docket, highlighting the release of Canadian monthly retail sales data and flash US PMI prints, for a fresh impetus. This, along with the official oil inventory data from the US, should influence the USD/CAD pair and assist investors to grab some meaningful trading opportunities on the last day of the week.

Technical levels to watch