• USD/CAD opened with a modest bullish gap, albeit lacked any strong follow-through buying.
  • Retreating US bond yields held the USD bulls from placing aggressive bets and capped gains.
  • Weaker oil prices undermined the loonie and remained supportive of the intraday move up.

The USD/CAD pair struggled to capitalize on its weekly bullish gap opening and was last seen trading with only modest gains, just above the key 1.2500 psychological mark.

Following the previous session’s pullback of over 50 pips from one-week tops, a combination of factors assisted the pair to catch some fresh bids on the first day of a new trading week. The Turkish lira took a hit after President Tayyip Erdogan replaced the hawkish central bank governor with a critic of high-interest rates. Worries that events in Turkey will cause disruptions in other financial markets benefitted the safe-haven US dollar and extended some support to the USD/CAD pair.

The USD bulls seemed rather unaffected by the ongoing pullback in the US Treasury bond yields, which have been retreating from over one-year tops set last week amid the upbeat US economic outlook. Investors remain optimistic about the prospects for a relatively faster US recovery from the pandemic, which has been fueling expectations for a possible uptick in US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period.

On the other hand, a weaker tone surrounding crude oil prices undermined the commodity-linked loonie and further contributed to the USD/CAD pair’s uptick for the third consecutive session. WTI remained depressed near the $61.00/barrel mark amid concerns that a new wave of COVID-19 infections in Europe and pandemic-related lockdown could hinder a fragile recovery in the global fuel demand. That said, spot prices have still managed to hold above one-month lows touched on Friday.

Despite the supporting factors, the USD/CAD pair, so far, has failed to gain any meaningful traction. The lack of any strong follow-through buying warrants some caution for bullish traders or positioning for any further appreciating move. However, the fact that bulls have managed to find acceptance above the 1.2500 mark supports prospects for an extension of last week’s goodish rebound from the 1.2365 region, or the lowest level since February 2018 set last Thursday.

Market participants now look forward to comments by a slew of influential FOMC members, including the Fed Chair Jerome Powell for some meaningful impetus. In the meantime, the broader market risk sentiment and the US bond yields will continue to play a key role in influencing the USD. Apart from this, oil price dynamics will further assist traders to grab some short-term opportunities around the USD/CAD pair.

Technical levels to watch

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