USD/CAD trades with modest gains around 1.2865-70 region, lacks follow-through

• A combination of supporting factors assisted USD/CAD to regain traction on Tuesday.
• Concerns about new coronavirus strain continued benefitting the safe-haven greenback.
• Sliding oil prices undermined the loonie and remained supportive of the intraday uptick.

The USD/CAD pair traded with a mild positive bias through the early European session, albeit lacked any follow-through and was last seen hovering near the 1.2865-70 region.

Following the previous day’s sharp intraday pullback of over 100 pips from two-and-half-week tops, the pair managed to regain positive traction for the third consecutive session on Tuesday. The uptick was supported by a broad-based US dollar strength and sliding crude oil prices, which tend to undermine demand for the commodity-linked loonie.

Renewed fears that the highly infectious new strain of COVID-19 could lead to a slower global economic recovery overshadowed the passage of a long-awaited $892 billion US coronavirus aid package. This was evident from a weaker trading sentiment around the equity markets, which continued benefitting the greenback’s status as the global reserve currency.

Meanwhile, the discovery of a new rapid-spreading variant of the highly contagious disease, along with the imposition of fresh lockdowns and travel restrictions fuelled worries over a slower recovery in fuel demand. This, in turn, led to a fresh leg down in crude oil prices and remained supportive of the intraday uptick for the USD/CAD pair.

That said, bulls lacked any strong conviction and the pair remained well within the previous day’s broader trading range. This warrants some caution before positioning for any further appreciating move for the USD/CAD pair. Hence, any subsequent move up might continue to confront some resistance near the 1.2900-1.2910 region.

Market participants now look forward to the US macro releases – final Q3 GDP report, Richmond Fed Manufacturing Index, Conference Board’s Consumer Confidence Index and Existing Home Sales. Apart from this, developments surrounding the coronavirus saga will influence the USD price dynamics and produce some meaningful trading opportunities around the USD/CAD pair.

Technical levels to watch