USD/CAD spikes to over two-week tops, eyeing to reclaim 1.2900 mark

• USD/CAD gained some strong positive traction on Monday amid a broad-based USD strength.
• Fresh coronavirus jitters boosted the USD’s safe-haven status and led to the strong move up.
• A slump in crude oil prices undermined the loonie and remained supportive of the momentum.

The strong buying around the greenback picked up pace during the early European session and pushed the USD/CAD pair to the 1.2900 neighbourhood, or over two-week tops in the last hour.

The pair caught some aggressive bids on the first day of a new trading week and finally broke out of its recent consolidative trading range held over the past one week or so. The strong momentum was sponsored by a broad-based US dollar strength and a slump in crude oil prices, which tend to undermine demand for the commodity-linked loonie.

The imposition of tougher COVID-19 restrictions in the UK to contain the fast-spreading new variant of coronavirus and a deadlock in post-Brexit trade talks took its toll on the global risk sentiment. This was evident from a turnaround in the equity markets, which provided a strong lift to the USD’s perceived safe-haven status.

Meanwhile, renewed coronavirus jitters overshadowed the latest optimism over news that a deal had finally been struck on a long-awaited US stimulus bill and an emergency use approval for Moderna’s COVID-19 vaccine. This, in turn, fuelled worries over a slower recovery in fuel demand and led to a steep decline in crude oil prices.

Apart from this, possibilities of some short-term trading stops being triggered on a sustained move beyond the 1.2820-25 supply zone further collaborated to the strong positive move. That said, investors might still wait for some follow-through buying beyond the 1.2900 mark before positioning for any further appreciating move.

There isn’t any major market-moving economic data due for release on Monday, either from the US or Canada. Hence, the broader market risk sentiment and developments surrounding the coronavirus saga will influence the safe-haven USD. This, along with oil price dynamics, might produce some meaningful trading opportunities around the USD/CAD pair.

Technical levels to watch