USD/CAD Forecast: Bears now await sustained break below 1.2865-60 congestion zone

The USD/CAD pair attracted some selling near the 1.2915 region during the Asian session on Monday and turned lower for the second successive day. The downtick dragged spot prices back closer to the 1.2865-1.2860 horizontal support and was sponsored by modest US dollar weakness. The recent slump in commodity prices now seems to have raised hope that inflation is nearing its peak. This, in turn, forced investors to scale back their expectations for more aggressive rate hikes by the Fed, which was reinforced by a pullback in the US Treasury bond yields. Apart from this, a generally positive tone around the equity markets was seen as another factor that weighed on the safe-haven greenback and acted as a headwind for the major.

On the other hand, the Canadian dollar drew support from rising bets for a 75 bps rate hike move by the Bank of Canada in July, reinforced by stronger domestic consumer inflation figures released last week. This, along with a modest uptick in crude oil prices, further underpinned the commodity-linked loonie and exerted some downward pressure on the USD/CAD pair. That said, the black liquid lacked bullish conviction as investors look forward to more clues from the G7 meeting this week on Russian oil exports and a revival of the Iran nuclear deal. In the meantime, traders on Monday will take cues from the US economic docket - featuring the release of Durable Goods Orders and Pending Home Sales - for some impetus later during the early North American session.

Technical outlook

From a technical perspective, some follow-through selling below the 1.2865-1.2860 congestion zone would suggest that the USD/CAD pair has topped out in the near term. This, in turn, might prompt aggressive selling and drag spot prices towards the next relevant support near the 1.2800 mark. A convincing break through the latter would shift the bias in favour of bearish traders and pave the way for a slide towards the 1.2760 intermediate support en-route the 1.2710-1.2700 area. The downward trajectory could further get extended towards the very important 200-day SMA, currently around the 1.2675 region.

On the flip side, the 1.2915 area, or the daily swing high, now seems to act as an immediate hurdle ahead of the 1.2945-1.2950 region. Bulls might then aim back to conquer the 1.3000 psychological mark, above which the USD/CAD pair could climb back to the 1.3075-1.3080 supply zone. Some follow-through buying, leading to a subsequent move beyond the 1.3100 mark, should pave the way for a  further near-term appreciating move.