USD/CAD trims losses but recovery remains limited

USD/CAD rose back above 1.2500 during the American session but the recovery remained limited. Price was unable to rise beyond 1.2520 and near the end of the day, it was hovering around 1.2510, down 35 pips from Monday’s close. 

A broad-based US dollar weakens, amid falling US bond yields, and a stronger Loonie, on the back of a rally in crude oil prices, pushed the pair to the downside. The US Dollar Index dropped momentarily below 93.00, the lowest since October 2 and then trimmed only a fraction of its losses, by rising to 93.05. The US 10-year yield bottomed at 2.32% before easing to 2.34%. On Wednesday, the minutes from the latest FOMC meeting will likely move yields. 

Crude oil fully recovered from Friday’s losses. The West Texas Intermediate rose above $50.00 a barrel and even traded on top of $51.00. It was gaining more than 2%. The rally in crude favored the Loonie that among commodity currencies was the best performer. 

Data from Canada released on Tuesday showed that building permits contracted 5.5% in August (against expectation of a -1.0% reading) while housing starts rose to 217.1K, on top of the 210K expected. The data limited the downside potential of the pair. 

Technical outlook

USD/CAD broke a short-term uptrend line, weakening the bullish perspective. Some consolidation for the coming hours could be expected. A decline back under 1.2500 could signal more gains for the Loonie. Support levels below might lie at 1.2480 and 1.2445/50 (Oct 4 low). 

To the upside, 1.2525 is the immediate resistance, above the greenback could gain momentum to rise to test weekly highs located at 1.2555/60 if it breaks on top attention would turn toward 1.2600.