USD/CAD retreats from one-week tops, turns flat around mid-1.2700s

The USD/CAD pair spiked to over one-week tops during the early European session, albeit quickly retreated few pips thereafter. The pair was last seen trading with around mid-1.2700s, nearly unchanged for the day.

The pair built on its recent recovery move from sub-1.2600 levels, or multi-year lows and edged higher for the fourth consecutive session on Tuesday. The uptick was supported by a modest pickup in the US dollar demand and a softer tone around crude oil prices, which tend to undermine demand for the commodity-linked loonie.

Investors remained worried about the economic fallout from the coronavirus pandemic. Adding to this, concerns over roadblocks to a $1.9 trillion US stimulus plan and escalating US-China tensions in the South China Sea further dampened the market mood. This, in turn, was seen as a key factor that benefitted the safe-haven greenback.

It is worth reporting that Republicans have raised objections on the expensive price tag of a $1.9 trillion COVID-19 stimulus package proposed by the US President Joe Biden. Adding to this, Democratic Majority Leader Chuck Schumer further raised doubts over the timing and said that a comprehensive deal could be four to six weeks away.

Meanwhile, fading hopes for rapid approval of new US economic stimulus comes amid the continuous surge in new coronavirus cases and the imposition of strict lockdown measures. This raised questions over the pace of recovery in the global fuel demand and led to some weakness in oil prices, which, in turn, weighed on the Canadian dollar.

That said, a goodish bounce in the European equity markets capped any strong gains for the USD and helped limit losses for the black gold. This was seen as one of the key factors that kept a lid on any runaway rally for the USD/CAD pair, rather led to a sharp pullback of around 35 pips from an intraday swing high level of 1.2782.

Market participants now look forward to the release of the Conference Board's US Consumer Confidence Index for some impetus. The key focus, however, will remain on the US stimulus headlines and developments surrounding the coronavirus saga. This, along with the FOMC policy decision on Wednesday and the Advance US Q4 GDP report on Thursday, will help determine the next leg of a directional move for the USD/CAD pair.

Technical levels to watch