- USD/CAD witnessed some selling on Wednesday and eroded a part of the overnight strong gains.
- The set-up still favours bullish traders and supports prospects for a further appreciating move.
- Investors look forward to the FOMC June policy meeting minutes for a fresh directional impetus.
The USD/CAD pair maintained its offered tone through the mid-European session and dropped to fresh daily lows, around the 1.2425 region in the last hour.
Expectations that the Fed will retain its ultra-lose policy stance for a longer period failed to assist the US dollar to capitalize on the overnight goodish intraday move up. This, in turn, was seen as a key factor that exerted some downward pressure on the USD/CAD pair.
That said, a softer tone around crude oil prices undermined the commodity-linked loonie and should help limit any deeper losses for the USD/CAD pair. Investors might also refrain from placing any aggressive bets ahead of Wednesday's release of the FOMC meeting minutes.
From a technical perspective, the USD/CAD pair has now eroded a part of the previous day's strong gains of nearly 200 pips from the vicinity of the 1.2300 mark. The momentum assisted the pair to break out through a descending trend-line extending from YTD tops touched in January.
The constructive set-up is reinforced by the fact that technical indicators on the daily chart are holding in the bullish territory and are still far from being in the overbought zone. That said, failure near the 1.2500 psychological mark warrants caution for bullish traders.
Hence, it will be prudent to wait for some follow-through buying beyond the mentioned handle before positioning for an extension of the recent recovery move from the lowest level since May 2015. The USD/CAD pair might then aim to surpass an intermediate hurdle near the 1.2545-50 zone.
The momentum could get extended and allow bullish traders to push the USD/CAD pair further towards reclaiming the 1.2600 round-figure mark. The next relevant barrier is pegged near the 1.2640-50 supply zone, which if cleared decisively will be seen as a fresh trigger for bullish traders.
On the flip side, any subsequent slide might still be seen as a buying opportunity near the 1.2400 mark. This is closely followed by the 100-day SMA support, currently near the 1.2380 region, which should now act as a key pivotal point for short-term traders.
Sustained weakness below will negate the positive outlook and prompt some technical selling. The USD/CAD pair might then slide to the 1.2320-15 support area ahead of the 1.2300 mark. Some follow-through selling might turn the pair vulnerable to retest the 1.2250 support area.
USD/CAD daily chart
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Technical levels to watch
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