USD/CAD Analysis: Traders seem non-committed amid recession fears, await this week's key releases

The USD/CAD pair witnessed an intraday turnaround on Friday and retreated around 100 pips from the weekly high, though lacked follow-through. Crude oil prices rallied over 3.5% intraday amid concerns about tight global supplies, which, in turn, underpinned the commodity-linked loonie. On the other hand, the recent slump in the US Treasury bond yields capped the US dollar near a two-decade high touched in June and acted as a headwind for the major. That said, a combination of factors continued lending support to the greenback and helped limit the downside for the pair, at least for the time being.

Fed Chair Jerome Powell, speaking at the ECB Forum in Sintra last Wednesday, reaffirmed bets for more aggressive rate hikes and said that the US economy is well-positioned to handle tighter policy. This further fueled worries that rapidly rising interest rates and tightening financial conditions would pose challenges to global economic growth. Apart from this, a further escalation in tensions between the West and Russia raised fears of a possible recession. This continued weighing on investors' sentiment, which was evident from the prevalent cautious mood and offered some support to the greenback.

The worsening global economic outlook, which could stall fuel demand recovery, kept a lid on any meaningful upside for oil prices. This was seen as another factor that held back traders from placing aggressive bearish bets around the USD/CAD pair. Market participants also preferred to wait on the sidelines ahead of this week's release of the FOMC monetary policy meeting minutes on Wednesday. This will be followed by the monthly employment details from the US (NFP) and Canada, which should provide a fresh impetus to the major.

In the meantime, spot prices are likely to oscillate in a range amid relatively thin trading volumes on the back of the Independence Day holiday in the US. That said, the broader market risk sentiment might still influence the USD demand. Apart from this, oil price dynamics should allow traders to grab short-term opportunities around the USD/CAD pair.

Technical outlook

From a technical perspective, the pair, so far, has been showing some resilience below the 38.2% Fibonacci retracement level of the 1.2518-1.3079 strong rally and held above the 50-day SMA support. The latter, currently around the 1.2830 region, should now act as a pivotal point. Some follow-through selling, leading to a subsequent break through the 50% Fibo. level around the 1.2800 mark would be seen as a fresh trigger for bearish traders. The USD/CAD pair might then accelerate the fall towards the 1.2740-1.2735 confluence, comprising 100-day SMA and the 61.8% Fibo. level. This is followed by the 1.2700 mark and the very important 200-day SMA support, around the 1.2680 region, which if broken decisively should pave the way for a further near-term depreciating move.

On the flip side, momentum back above the 1.2900 round figure might continue to confront stiff resistance near the 1.2960-1.2965 region. The said barrier nears the 23.6% Fibo. level, which if cleared decisively would set the stage for the resumption of the prior bullish trend. Spot prices could then climb back towards the 1.3000 psychological mark. Some follow-through buying should allow the USD/CAD pair to aim back to retest the YTD top, around the 1.3075-1.3080 region, en-route the 1.3100 mark.