USD/CAD rebound fades below 1.2700 even as oil eases from three-year high

• USD/CAD grinds higher following a bounce off 13-day low.
• Risk aversion wave underpinned US dollar demand.
• EIA inventories exert additional downside pressure on oil prices.
• China, Fed tapering in focus, second-tier data may get attention but nothing major in Asia.

USD/CAD seesaws around 1.2680 amid a quiet Asian morning on Wednesday, following the heaviest daily run-up in eight days, not to forget mentioning a recovery move from a fortnight low to briefly pierce the 1.2700 threshold.

Alike other major currencies, USD/CAD also portrayed the US dollar strength while bouncing off a multi-day low. Adding strength to the pair’s recovery moves was the WTI oil price downside after rising to the fresh high since September 2018.

The US Federal Reserve’s (Fed) Chairman Jerome Powell narrated inflation and employment stories to justify the central bank’s uttering of the word ‘taper’ during his testimony to Congress. The tapering talks joined escalating fears concerning China and Evergrande to weigh on the sentiment and offer additional support to the US Dollar Index (DXY) that portrayed a three-day rally to a 10-month peak.

In addition to the taper tantrums and China-linked economic fears, mainly due to the Evergrande saga and power cut issues, the US Democratic Party members’ failures to raise the debt ceiling in the Senate also underpinned the risk-off mood. Following that, US Treasury Secretary Janet Yellen warned of the empty pockets on October 18.

While the risk aversion and firmer US dollar offered USD/CAD prices, the same also dragged down Canada’s biggest export item WTI crude oil and provided additional strength to the Loonie pair. It’s worth noting that the higher inventory stockpile, per the Weekly Oil Stocks report of the US Energy Information Administration (EIA), added extra burden on the black gold and favored the pair buyers.

However, USD/CAD buyers await fresh clues to extend the recovery moves, which in turn highlights headlines concerning Fed tapering and US debt ceiling, not to forget China, for fresh impulse. Given the absence of major data/events in Asia, USD/CAD will rely on the US session macros when the Fedspeak will join second-tier US housing numbers, as well as Canada Industrial Production, to entertain the pair traders.

Technical analysis

The USD/CAD pair’s U-turn from a three-month-old support line near 1.2600, followed by a bounce-back beyond 50-DMA level of 1.2620, needs to cross a one-month-old horizontal resistance surrounding 1.2710 to convince the buyers.