USD/CAD rallies to 1-month tops, fast approaching 1.3400 mark

The USD/CAD pair rallied around 100 pips from the daily swing lows and shot to near one-month tops, around the 1.3375-80 region during the early North American session.

Following an early slide to the 1.3280-75 region, the pair witnessed a dramatic turnaround and was being supported by a combination of factors. The US dollar was back in demand amid growing market worries about the potential economic impact of fresh restriction to curb the second wave of the coronavirus infections.

The USD bulls seemed rather unaffected by the uncertainty about the outcome of the US presidential election next week, instead took cues from stronger-than-expected US GDP report. According to the advance estimates, the US economy expanded by 33.1% annualized pace during the third quarter of 2020 as against a growth of 31% anticipated.

Apart from this, a steep decline in crude oil prices undermined demand for the commodity-linked currency – the loonie – and provided an additional boost to the USD/CAD pair. This, coupled with possibilities of some short-term trading stops being triggered above the overnight swing highs, around 1.3335 region, further contributed to the strong momentum.

Meanwhile, technical indicators on hourly charts are already flashing extremely overbought conditions. Hence, any subsequent move up is more likely to confront a stiff resistance near the 1.3410-15 supply zone. That said, some follow-through buying should pave the way for an extension of the bullish trajectory further towards the key 1.3500 psychological mark.

Technical levels to watch