USD/CAD struggles for direction, stuck in a range below 1.2800 mark

• USD/CAD was seen consolidating in a range below the 1.2800 mark on Wednesday.
• Bullish crude oil prices underpinned the loonie and capped the upside for the pair.
• An uptick in the US bond yields benefitted the USD and extended some support.

The USD/CAD pair lacked any firm directional bias and seesawed between tepid gains/minor losses, below the 1.2800 mark through the early European session.

A combination of diverging forces failed to provide any meaningful impetus to the major, instead led to a subdued/range-bound price action on Wednesday. The prevalent bullish sentiment around crude oil prices continued benefitting the commodity-linked loonie, which, in turn, kept a lid on any meaningful upside for the USD/CAD pair.

In fact, oil prices added to the previous day’s strong gains of almost 5% and climbed to the highest level in more than a year. Renewed optimism over a massive US fiscal stimulus, along with positive news about the development of COVID-19 vaccines lifted hopes for fuel demand recovery and pushed oil prices beyond the $55.00 psychological mark.

Apart from this, a decline in the US stockpiles provided an additional boost and remained supportive of the ongoing bullish run in crude oil prices. That said, expectations for a larger government borrowing continued driving the US Treasury bond yields higher and underpinned the US dollar, which might help limit any further losses for the USD/CAD pair.

The lack of any strong follow-through selling now warrants some caution for bearish traders and before positioning for any further depreciating move. Market participants now look forward to the release of the US ISM Services PMI. This, along with the official EIA report on US crude inventories might produce some meaningful trading opportunities.

Technical levels to watch