USD/CAD consolidates in a range near four-week tops, above mid-1.2100s

The USD/CAD pair extended its sideways consolidative price move through the first half of the European session and remained confined in a range, just above mid-1.2100s.

A combination of diverging forces failed to assist the USD/CAD pair to capitalize on Friday's positive move to four-week tops, instead led to a subdued action on the first day of a new trading week. The ongoing bullish run in crude oil prices underpinned the commodity-linked loonie and kept a lid on any further gains for the major.

Oil prices added to the recent strong gains recorded over the past three weeks and shot to the highest level since October 2018. The momentum remained well supported by an improved outlook for the recovery in the fuel demand amid the continuous improvement of the coronavirus situation in the United States and much of Europe.

The negative factor, to a larger extent, was offset by a modest US dollar strength, which, in turn, helped limit the downside for the USD/CAD pair. Expectations that the Fed might begin the discussion on tapering its asset purchases in the face of rising inflationary pressures. This, in turn, acted as a tailwind for the greenback.

It is worth recalling that the pace of inflation in the US climbed to a 13-year high in May. Apart from this, signs of stability in the US Treasury bond yields extended some additional support to the buck, though did little to impress bullish traders or provide any meaningful impetus to the USD/CAD pair, at least for now.

Investors now seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the key FOMC monetary policy meeting on June 15-16. This makes it prudent to wait for some strong follow-through buying before confirming that the USD/CAD has bottomed out and positioning for any further gains.

Technical levels to watch