USD/CAD trades with modest gains, around 1.2570-75 region

The USD/CAD pair maintained its bid tone through the early European session, albeit has retreated few pips from daily tops and was last seen trading around the 1.2570-65 region.

The pair managed to regain some positive traction on Thursday and recovered a part of the previous day's heavy losses, though lacked any strong follow-through buying. A further recovery in the global risk sentiment continued acting as a headwind for the safe-haven US dollar and capped the upside for the USD/CAD pair.

Investors now seemed to have set aside worries about the potential economic fallout from the spread of the highly contagious Delta variant of the coronavirus. This was evident from a generally positive tone around the equity markets, which undermined demand for traditional safe-haven currencies, including the greenback.

On the other hand, the overnight strong rally in crude oil prices continued lending some support to the commodity-linked loonie and collaborated to keep a lid on any meaningful gains for the USD/CAD pair. The black gold remained well supported by expectations that supplies will remain tight through the end of 2021.

The optimism helped offset Wednesday's bearish report from the Energy Information Administration (EIA), which confirmed a surprise build in US crude oil supplies. That said, fresh COVID-19 outbreaks have raised concerns about the short-term fuel demand outlook and held traders from placing aggressive bullish bets around the commodity.

Market participants now look forward to the US economic docket, featuring the second-tier releases of the usual Initial Weekly Jobless Claims and Existing Home Sales data. This, along with the US bond yields, might 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