USD/CAD remains confined in a range above mid-1.2000s, seems vulnerable

The USD/CAD pair extended its sideways consolidative price action through the early European session and remained confined in a range above mid-1.2000s.

The pair continued with its struggle to register any meaningful recovery and languished near the lowest level since May 2015 amid the prevalent bearish sentiment surrounding the US dollar. The ongoing decline in the US Treasury bond yields kept the USD bulls on the defensive. Apart from this, the underlying bullish sentiment in the financial markets further acted as a headwind for the safe-haven greenback.

Meanwhile, the USD bulls failed to gain any respite from firming expectations that the Fed could taper its emergency stimulus measures amid signs of rising inflationary pressure. The market speculations were further fueled by Friday's encouraging PMI reports, which indicated that the business activity in the private sector expanded at a record-setting pace in May and that price pressures continued to increase sharply.

On the other hand, some follow-through uptick in crude oil prices underpinned the commodity-linked loonie, which remained well supported by a more hawkish Bank of Canada. It is worth recalling that the BoC reduced its weekly asset purchases at the April policy meeting and also brought forward the guidance for the first interest rate hike to the second half of 2022. This further collaborated to cap gains for the USD/CAD pair.

From a technical perspective, the recent price action might still be categorized as a consolidation phase. This, along with the USD/CAD pair's inability to gain any meaningful traction, suggests that the near-term bearish trend might still be far from being over. This, in turn, supports prospects for a further near-term depreciating move amid absent relevant market-moving economic releases, either from the US or Canada.

Technical levels to watch