USD/CAD struggles near 2-1/2 month lows, just above mid-1.3700s

The USD/CAD pair traded with a mild negative bias through the early European session, with bears flirting with 2-1/2-month lows, just above mid-1.3700s.

The pair failed to capitalize on the early attempted recovery move, instead met with some fresh supply near the 1.3800 mark and drifted into the negative territory for the third consecutive session. The downtick seemed rather unaffected by a goodish pickup in the US dollar demand and a modest pullback in crude oil prices.

The greenback was back in demand amid worsening US-China relations, which overshadowed the latest optimism over a potential COVID-19 vaccine. Tensions between the world's two largest economies escalated after the US President Donald Trump promised a strong reaction to China's planned national security law for Hong Kong.

China was quick to retaliate and threatened countermeasures against any US actions, which revived worries over the fragile demand recovery for oil. This was evident from a weaker tone surrounding crude oil prices, which tends to undermine the commodity-linked loonie, albeit failed to provide any respite to the USD/CAD bulls.

The pair's inability to gain any meaningful traction – despite a combination of supporting factors – clearly suggests that the near-term bearish pressure might still be far from being over. Hence, some follow-through weakness, towards testing 100-day SMA support near the 1.3700 mark, now looks a distinct possibility.

There isn't any major market-moving economic data due for release on Wednesday, either from the US or Canada. Hence, the broader market risk sentiment, along with the USD/oil price dynamics will be looked upon to grab some meaningful trading opportunities.

Technical levels to watch