USD/CAD flirts with daily low amid notable USD weakness, uptick in oil prices

• USD/CAD retreats around 130 pips from its highest level since July 2020 touched this Thursday.
• A sharp USD turnaround from a two-decade high turns out to be a key factor exerting pressure.
• An intraday uptick in oil prices underpins the loonie and contributes to the sharp intraday decline.

The USD/CAD pair retreats sharply from its highest level since July 2020 touched earlier this Thursday and remains on the defensive through the early North American session. The pair is currently placed near the lower end of its daily trading range, just above the 1.3400 mark, though any meaningful corrective fall still seems elusive.

The US dollar witnessed a dramatic turnaround from a fresh 20-year peak touched earlier this Thursday. Apart from this, a goodish pickup in crude oil prices underpins the commodity-linked loonie and further contributes to the USD/CAD pair's steep intraday fall of nearly 130 pips. News that the Japanese government intervened in the forex market triggers a massive rally in the Japanese yen and prompts aggressive USD long-unwinding trade.

That said, a more hawkish stance adopted by the Federal Reserve, along with growing recession fears, should act as a tailwind for the safe-haven greenback. Furthermore, worries that a deeper global economic downturn will dent fuel demand could keep a lid on any meaningful upside for the black liquid. This, in turn, supports prospects for the emergence of some buying around the USD/CAD pair, warranting caution before confirming a near-term top.

Even from a technical perspective, the overnight post-FOMC positive move confirmed a fresh bullish breakout through a multi-month-old ascending trend-channel resistance. Hence, any subsequent pullback might still be seen as a buying opportunity and is more likely to remain limited, at least for the time being.

Technical levels to watch