The USD/CAD pair built on the previous day's bounce from the 1.2600 region, or a three-week low, and gained strong positive traction on Thursday. Following a strong run-up this week, crude oil prices witnessed some profit-taking amid worries that the imposition of fresh COVID-19 restrictions could dent fuel demand. This, in turn, undermined the commodity-linked loonie and provided a goodish lift to the major amid the emergence of fresh US dollar buying.

Mixed headlines on the Omicron variant of the coronavirus kept a lid on the recent optimism, which was evident from a softer tone around the equity markets. This, in turn, drove flows towards traditional safe-haven currencies and allowed the USD to reverse a major part of the previous day's corrective slide. The greenback was further supported by surprisingly low Jobless Claims. In fact, the number of Americans who filed for unemployment-related benefits dropped to 184K – the lowest since 1969 – in the week ending December 4 and reinforced hawkish Fed expectations.

BULLISH AND BEARISH CONDITIONS/ POSSIBILITIES : (TECHNICALS)

From a technical perspective, the recent pullback from a multi-month high stalled near the 1.2600 round figure. This is followed by support near the 1.2580-70 confluence region, comprising of 100-day SMA and the 50% Fibonacci level of the 1.2288-1.2845 move up. The latter should now act as a pivotal point for short-term traders, which if broken decisively will set the stage for deeper losses. The pair might then accelerate the fall towards challenging the key 1.2500 psychological mark, coinciding with the 61.8% Fibo. level.

On the flip side, bulls, so far, have struggled to push the pair back above the 23.6% Fibo. level resistance, around the 1.2720 region. Some follow-through buying will suggest that the corrective decline has run its course and shift the bias back in favour of bullish traders. The next relevant hurdle is pegged near mid-1.2700s, above which the pair seems all set to reclaim the 1.2800 mark. The positive momentum could further get extended and push the pair back towards testing a multi-month high, around mid-1.2800s.

Loonie Needs To Break Above 1.2742 For Hawkish Continuation

Dec 11 2021

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