USD/CAD remains indecisive after refreshing a fortnight top the previous day, retreating from intraday high to 1.2645 ahead of Tuesday’s European session.

In doing so, the Loonie pair struggles to find a balance between the risk-off mood and hawkish headlines for Canada’s key export item, WTI crude oil, amid sluggish trading hours.

That said, market sentiment sours as traders await the Federal Open Market Committee (FOMC) meeting with mixed clues over the Fed’s next moves. Among them were the recently downbeat US Markit PMIs and the US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data.

On other hand, geopolitical fears surrounding Russia and Ukraine escalate as Moscow refrains from accepting the global pressure towards a ceasefire even as political leaders warn of economic sanctions.

Monday’s swift move higher marks a clean upside break of the 1.2450-1.2550 range that had prevailed over the past week and a half and has seen the pair move above its 21-day moving average at 1.2640. USD/CAD hasn’t yet been able to surpass its 50DMA at just above the 1.2700 level, which is now acting as resistance. But if US stocks keep dropping at the present rate, it's only a matter of time. A break above 1.2700 would open the door to a test of the next major area of resistance around 1.2800.

Unless crossing a five-week-old descending resistance line, around 1.2660 by the press time, odds of the USD/CAD pullback towards the 200-DMA retest, near 1.2500 at the latest, can’t be ruled out.

USDCAD Fails to Breakout Above 1.2700

Jan 25 2022