USD/CAD bulls challenge 200-day SMA, around 1.2560 region
- Declining oil prices undermined the loonie and helped USD/CAD to gain some traction on Monday.
- COVID-19 jitters drove some haven flows towards the USD and provided an additional lift to the pair.
- Uncertainty about the Fed’s taper plan might cap the USD, warranting caution for aggressive bulls.
The USD/CAD pair climbed to multi-day tops, around the 1.2565 region in the last hour, with bulls making a fresh attempt to build on the momentum beyond the very important 200-day SMA.
A combination of factors assisted the USD/CAD pair to catch some fresh bids on the first day of a new trading week and finally broke out of a three-day-old trading range. A sharp fall in crude oil prices, now down nearly 3% for the day, undermined the commodity-linked loonie. This, along with a modest pickup in the US dollar demand, provided a modest lift to the major.
Oil prices lost ground for the third successive session amid worries about the economic fallout from the fast-spreading Delta variant of the coronavirus and the effects this will have on the global fuel demand. The market concerns were further fueled by disappointing Chinese macro data, which pointed to a surprisingly sharp slowdown in the world's second-largest economy.
Meanwhile, persistent COVID-19 jitters took its toll on the global risk sentiment. This was evident from the risk-off impulse in the markets, which drove some haven flows towards the US dollar. This was seen as another factor that contributed to the bid tone surrounding the USD/CAD pair. That said, uncertainty over the Fed's tapering plan might cap gains for the USD.
Signs of moderating inflationary pressure in the US and a slump in the US consumer confidence forced investors to scale back their bets for an early tightening of the policy by the Fed. This, in turn, warrants some caution for aggressive bullish traders and before positioning for any further appreciating move amid absent relevant market-moving economic releases.
Technical levels to watch