USD/CAD Outlook: 1.2790-85 confluence holds the key for bulls ahead of US CPI on Wednesday

• USD/CAD witnessed fresh selling on Monday and was pressured by a combination of factors.
• Rebounding oil prices underpinned the loonie and exerted some pressure amid a weaker USD.
• Recession fears, hawkish Fed expectations helped limit losses for the USD and offered support.

The USD/CAD pair came under renewed selling pressure on Monday and reversed a major part of its gains recorded over the past two trading sessions. The overnight slide dragged spot prices below mid-1.2800s and was sponsored by a combination of factors. A fresh leg down in the US Treasury bond yields, along with signs of stability in the financial markets, weighed on the safe-haven US dollar. Apart from this, a goodish pickup in crude oil prices underpinned the commodity-linked loonie and exerted downward pressure on the major.

That said, growing recession fears, which could hit fuel demand, kept a lid on any further gains for the black liquid and the optimistic move in the markets. Moreover, speculations that the Fed would retain its aggressive policy tightening path acted as a tailwind for the buck and assisted the pair to regain some positive traction during the Asian session on Tuesday. Against the backdrop of the recent hawkish comments by several FOMC officials, Friday's stellar US jobs report lifted bets for a larger Fed rate hike move in September.

Adding to this, Fed Governor Michelle Bowman said on Saturday that the US central bank should consider more 75 bps hikes at coming meetings to bring inflation back down. Hence, the market focus now shifts to the latest US consumer inflation figures, due for release on Wednesday. The data would be looked upon for fresh clues about the Fed's next steps, which, in turn, would play a key role in driving the near-term USD demand. This, along with oil price dynamics, should help determine the next leg of a directional move for the USD/CAD pair.

Heading into the very important data risk, traders might refrain from placing aggressive bets amid absent relevant market-moving economic releases on Tuesday, either from the US or Canada. Nevertheless, the US bond yields, along with the broader market risk sentiment, could still influence the buck and produce short-term trading opportunities around the USD/CAD pair.

Technical Outlook

From a technical perspective, any subsequent decline is likely to find some support near the 1.2800 mark ahead of the 1.2790-1.2785 confluence. The latter comprises the 100-day SMA and the 61.8% Fibonacci retracement level of the 1.2518-1.3224 strong rally, which should act as a key pivotal point. A convincing break below would be seen as a fresh trigger for bearish traders and make the USD/CAD pair vulnerable. Spot prices could then accelerate the fall towards the 1.2700 round-figure mark before eventually dropping to the next relevant support near the 1.2655-1.2650 region.

On the flip side, sustained strength beyond the 50% Fibo. level has the potential to lift the USD/CAD pair beyond the 1.2900 mark, towards the 1.2930-1.2935 hurdle. This is closely followed by the 38.2% Fibo. level, around mid-1.2900s, ahead of the monthly peak, near the 1.2985 region. Some follow-through buying, leading to a subsequent strength above the 1.3000 psychological mark, should pave the way for a move towards the 1.3055-1.3060 region, or the 23.6% Fibo. level.