USD/CAD finds support around mid-1.25s as oil rally falters

After dropping to its lowest level in more than 14 months at 1.2545 in the early trading hours of the NA session, the USD/CAD pair reversed course and started to retrace its losses. At the moment, the pair is trading at 1.2580, still losing 0.2% on the day.

The pair's sharp fall in the day was caused by a broad-based greenback sell-off that dragged the US Dollar Index below the 94 mark for the first time in more than a year. A Bloomberg story that claimed US President Donald Trump's business interactions with Russia were going to be included in the election probe kept the investors away from the USD, which was already under pressure amid rising demand for European currencies following Mario Draghi's, the President of the ECB, remarks earlier in the session. As of writing, the DXY is at 94.05, down 0.62% on the day.

On the other hand, the barrel of West Texas Intermediate, which rose to a fresh six week high at $47.75 on the back of another large crude inventory draw in the U.S., lost its momentum in the last hours and is now trading at $47, losing 0.63% on the day. Although this latest drop seems to be a profit-taking move as it was not caused by a fundamental development, it was enough to cap the gains of the commodity-sensitive loonie.

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Tomorrow's economic docket will feature retail sales, which is expected to retreat to 0.2% in May from 0.8% in June, and CPI data from Canada. Better-than-expected readings could help the CAD catch some fresh bids before the markets close for the week.

Technical outlook

The pair could encounter the initial support at 1.2500 (psychological level) ahead of 1.2460 (May 3, 2016, low) and 1.2365 (Jun. 2, 2015, low). On the upside, resistances could be seen at  1.2705 (10-DMA), 1.2770 (Jul. 13 high) and 1.2860 (20-DMA). The RSI indicator on the daily graph remains below the 30 mark for the fifth consecutive day, signaling an overdue correction.