USD/CAD slides to 1.2950 on oil’s rebound, softer USD ahead of Powell’s Testimony

• USD/CAD takes offers to refresh daily low, extends the week-start pullback.
• Oil prices benefit from cautious optimism, softer US dollar.
• Yields fail to underpin greenback’s rebound amid market’s indecision ahead of Fed’s Powell.
• Canada Retail Sales, second-tier US data can offer immediate directions.

USD/CAD remains on the back foot around 1.2950, extending the previous day’s losses towards refreshing the daily low near 1.2930 ahead of Tuesday’s European session. The Loonie pair’s latest weakness could be linked to the US dollar’s broad weakness, as well as a rebound in Canada’s key export item, namely WTI crude oil.

US Dollar Index (DXY) extends the week-start losses to 104.35, down 0.14% intraday by the press time, which in turn allows the commodities and Antipodeans to cheer the risk-on mood. The greenback’s weakness could be linked to the recently downbeat US data and softer US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. It’s worth noting that the US inflation expectations refreshed monthly low on Friday.

On the other hand, WTI crude oil prices hold onto the previous day’s rebound from the monthly low, up 0.90% intraday around $109.80 at the latest.

The black gold appears to benefit from the firmer sentiment, as well as the cautious mood over the supply concerns amid a fresh bout of geopolitical tensions between Russia and Ukraine.

On a positive note, headlines suggesting an improvement in China’s covid conditions and the US readiness to ease the Trump-era tariffs on the dragon nation seem to favor the market sentiment.

While portraying the mood, the S&P 500 Futures rise around 1.6%, up for the second consecutive day, as it flashes the 3,735 level at the latest. On the same line, the US 10-year Treasury yields extend Friday’s gains to begin the week’s trading around 3.3%, up four basis points (bps) by the press time.

Looking forward, Canada’s Retail Sales for May, expected 0.8% versus 0.0% prior, will be important for the USD/CAD traders. Also, the Chicago Fed National Activity Index and the US Existing Home Sales for May could entertain intraday traders. However, major attention will be on Fed Chair Jerome Powell’s Testimony on the bi-annual Monetary Policy Report.

Technical analysis

USD/CAD holds onto the downside break of a one-week-old ascending trend line, previous support while keeping Friday’s U-turn from a 19-month high. It’s worth noting that the Loonie pair ticked up to refresh the multi-month high before reversing from 1.3075. In that process, the quote portrayed a double-top bearish chart pattern surrounding the 1.3080-75 area.

Hence, the double-top formation and a downbeat break of the immediate support, not to forget bearish MACD signals and descending RSI line, suggest the USD/CAD pair’s further downside.