USD/CAD rallies, approaches 1.2800 amid risk-off market sentiment spurred by new COVID-19 variant

• The COVID-19 NU variant found in South Africa, spurred a sell-off of assets with the “risk” word attached to it, boosting safe-haven currencies.
• USD/CAD advances sharply, up more than 1%, amid risk-off market sentiment.
• USD/CAD: A break above 1.2800 could expose a move towards the YTD high at 1.2948.

The USD/CAD rallies on the back of market participants’ concerns regarding the new COVID-19 variant found in South Africa, advance 1.01%, trading at 1.2777 during the New York session at the time of writing. Market sentiment has been the driver of the session, with the NU COVID-19 variant found in South Africa, which seems to have more mutations, evading vaccines. Countries like the UK, Singapore, and Israel, included some African nations on its red list. Further, Japan imposed tighter border restrictions.

In the overnight session, amid thin liquidity conditions, due to a shorter New York session, increased the volatility in the pair, which on Thursday closed near 1.2649. The news of the NU COVID-19 variant spurred the rally, which left behind all the daily pivot levels on its way north, trading at fresh two-month highs, approaching the 1.2800 figure.

USD/CAD Price Forecast: Technical outlook

The USD/CAD pair is accelerating the upward move. On the way up, broke the September 29 swing high resistance at 1.2774, leaving the year-to-date high around 1.2948 as the last line of defense of USD/CAD bears. Nevertheless, in overbought conditions, the Relative Strength Index (RSI) at 73 suggests the pair might consolidate before USD/CAD traders could determine which way the pair could be headed.

In the continuation of the upward move, the first resistance would be the psychological 1.2800. A breach of the latter would expose crucial supply zones, with the September 20 swing high at 1.2895, followed by the year-to-date August 20 cycle high at 1.2948.

On the flip side, the September 29 swing high-turned support at 1.2774 would be the first support. A break of that level would expose the 1.2700 round psychological, followed by the November 25 high at 1.2676.