USD/CAD struggles for direction, flat-lined above 1.2400 ahead of US data/FOMC

• USD/CAD remained confined in a narrow trading band through the mid-European session.
• Sliding crude oil prices undermined the loonie and extended some support to the major.
• A softer tone around the USD capped gains amid nervousness ahead of the FOMC decision.

The USD/CAD pair lacked any firm directional bias and seesawed between tepid gains/minor losses through the mid-European session. The pair was last seen trading around the 1.2410-15 region, nearly unchanged for the day.

A combination of diverging forces failed to provide any meaningful impetus, or assist the USD/CAD pair to capitalize on the previous day's positive move. Retreating crude oil prices – now down over 2% – undermined the commodity-linked loonie and acted as a tailwind for the major. However, the upside remains capped amid the emergence of some selling around the US dollar.

Meanwhile, the USD downtick lacked any obvious fundamental catalyst and could be attributed to some repositioning trade ahead of the key event risk – the outcome of a critical two-day FOMC meeting. The Fed is scheduled to announce its policy decision during the US session and is widely anticipated to begin tapering its $120 billion-a-month bond purchase program.

The move is fully priced in the markets and investors will look for clues about the likely timing when the Fed would hike interest rates. Hence, the market focus will be on the accompanying monetary policy statement and Fed Chair Jerome Powell's remarks at the post-meeting press conference. This will influence the USD and provide a fresh directional impetus to the USD/CAD pair.

In the meantime, investors' reluctance to place aggressive bets turned out to be a key factor that led to a subdued/range-bound price action. Market participants now look forward to the release of the ADP report on private-sector employment and ISM Services PMI. Any significant divergence from expected readings might produce some trading opportunities around the USD/CAD pair.

Technical levels to watch