USD/CAD sits near multi-week tops, awaits a sustained move beyond 1.2600 mark
- USD/CAD gained traction for the third successive day and refreshed multi-week tops.
- Weaker crude oil prices undermined the loonie and acted as a tailwind for the major.
- The strong USD bullish sentiment supports prospects for a further appreciating move.
The USD/CAD pair maintained its bid tone near multi-week tops through the early European session, with bulls looking to build on the momentum beyond the 1.2600 mark.
The pair built on the previous day's bullish breakout momentum through a three-week-old ascending channel and gained some follow-through traction for the third successive day on Friday. A weaker tone around crude oil prices undermined the commodity-linked loonie and acted as a tailwind for the USD/CAD pair amid the prevalent strong bullish sentiment surrounding the US dollar.
In fact, the USD Index shot to 16-month tops earlier today amid expectations that the Fed would adopt a more aggressive policy response to contain stubbornly high inflationary pressures. The bets for an early policy tightening by the Fed increased further after data released on Wednesday showed that the US consumer prices in October rose at the fastest annual pace since 1990.
Meanwhile, the Fed funds futures indicate that the first-rate hike could come as soon as July 2022, which, in turn, remained supportive of elevated US Treasury bond yields. This, along with the cautious mood around the equity markets, continued underpinning the safe-haven greenback and pushed the USD/CAD pair to the highest level since October 6, validating the bullish breakout.
This comes on the back of acceptance above the very important 200-day SMA and supports prospects for an extension of this week's hotter-than-expected US CPI-inspired strong rally from sub-1.2400 levels. That said, overbought RSI (14) on hourly charts warrants some caution for aggressive bullish traders. Nevertheless, the USD/CAD pair remains on track to end the week on a positive note.
Investors now look forward to the US economic docket, highlighting the release of the Prelim Michigan Consumer Sentiment Index. Apart from this, the US bond yields and the broader market risk sentiment will influence the USD. Traders will further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.
Technical levels to watch
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
