• USD/CAD climbed to nearly three-week tops on Tuesday, albeit lacked any follow-through.
  • Investors now turn cautious ahead of this week’s important events and key macro releases.
  • The formation of an ascending trend-channel supports prospects for some near-term gains.

A combination of factors assisted the USD/CAD pair to gain traction for the second straight session on Tuesday and climb to the highest level in nearly three weeks. A broad-based USD strength remains a key theme in the market amid the upbeat US economic outlook. The impressive pace of vaccinations and US President Joe Biden's spending plan have been fueling expectations for a relatively faster US economic recovery. Apart from this, a sharp intraday spike in the US Treasury bond yields provided an additional boost and pushed the key USD Index to over four-month tops. This, in turn, was seen as a key factor that extended some support to the major.

On the other hand, a softer tone around the oil market undermined the commodity-linked loonie and further contribute to the overnight positive move. Oil prices edged lower on Tuesday amid worries that the third wave of COVID-19 infections, pandemic-related lockdown and the slow vaccine rollouts in Europe could hinder the anticipated recovery in demand for fuel products. That said, expectations that OPEC+ members will agree to roll over the supply curbs into May helped limit any further losses, rather helped the commodity to recover a part of the previous day's slide and exerted some pressure on the major during the Asian session on Wednesday.

Meanwhile, the downside remains cushioned, at least for the time being, as investors refrained from placing aggressive bets ahead of the key events/macro releases. US President Joe Biden will outline details about the first stage of his infrastructure spending plan of around $3 trillion to $4 trillion later this Wednesday, while the OPEC and allies – together called OPEC+ – are set to meet on Thursday. On the economic data front, investors on Wednesday will confront the release of the ADP report on the US private-sector employment and monthly Canadian GDP report. This, along with Friday's release of the closely-watched US monthly jobs report (NFP) should provide a fresh directional impetus to the major.

Short-term technical outlook

From a technical perspective, the pair has been trending higher along an upward sloping channel over the past one week or so. The lower boundary of the mentioned trend-channel, currently around the 1.2600 mark, coincides with 100-hour EMA and should now act as a key pivotal point for intraday traders. A sustained breakthrough, leading to a subsequent slide below the overnight swing low, around the 1.2580 area will be seen as a fresh trigger for bearish traders. The pair might then accelerate the fall further towards challenging the key 1.2500 psychological mark.

On the flip side, the 1.2630-40 region now seems to have emerged as immediate strong resistance. Above the mentioned hurdle, the pair might aim to test the trend-channel hurdle, currently near the 1.2675-80 region. Some follow-through buying will mark a bullish breakout and push the pair further beyond the 1.2700 mark, towards the next major hurdle near the 1.2735-40 supply zone, or monthly tops touched on March 5.

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