- USD/CAD lacks a firm intraday directional bias on Tuesday amid a combination of diverging forces.
- Rising oil prices underpin the Loonie, while hawkish Fed bets provide a goodish lift to the USD.
- The technical setup favors bearish traders and backs the case for a further near-term depreciation.
The USD/CAD pair struggles to capitalize on the overnight bounce from its lowest level since June 3, around the 1.3845 zone, also representing the 200-day Simple Moving Average (SMA) support, and oscillates in a narrow band on Tuesday. Spot prices extend the range-bound price action through the early European session and currently trade around the 1.3870-1.3875 region, unchanged for the day amid mixed cues.
Crude oil prices climb to an over two-week high amid the US-Iran standoff over the Strait of Hormuz. This, along with Monday’s hot Canadian consumer inflation figures, continues to underpin the commodity-linked Loonie and acts as a tailwind for the USD/CAD pair. The downside, however, remains cushioned amid a strong follow-through US Dollar (USD) recovery from a two-month low, bolstered by bets for at least one rate hike by the US Federal Reserve (Fed) on the back of oil-driven inflation risks.
Meanwhile, momentum indicators suggest that bearish sentiment dominates even as spot prices stabilize above the longer-term trend support. In fact, the Relative Strength Index (14) sits in oversold territory near 29, hinting at stretched downside conditions, while the Moving Average Convergence Divergence (MACD) indicator remains below zero with negative readings. Moreover, the USD/CAD pair has found acceptance below the 50% Fibonacci retracement level of the April-June rally, validating the negative outlook.
However, a convincing break below the 200-day SMA at 1.3848 is needed to back the case for deeper losses to the 61.8% Fibo. level at 1.3822. Some follow-through selling would expose the 78.6% level at 1.3708, before the USD/CAD pair extends the fall toward the structural floor near 1.3562.
On the topside, initial resistance is located at the 50.0% retracement at 1.3902, followed by the 38.2% level at 1.3982 and then the 23.6% retracement at 1.4081, with the cycle high anchor around 1.4242 acting as a more distant barrier.
