USD/CAD: Steady above 1.2600 as anxiety over Ukraine-Russia battles firmer oil

• USD/CAD treads water around two-week low, pauses three-day downtrend.
• Risk appetite weakens as US alleges China for helping Russia ahead of Xi-Biden talks.
• Fears of Russian default, fresh covid woes in China add to the sour sentiment.
• DXY pares weekly losses despite downbeat yields, stock futures, Canada Retail Sales eyed as well.

USD/CAD bears take a breather around 1.2615-20 after declining during the last three consecutive days as market sentiment dwindles amid Friday’s sluggish Asian session. In doing so, the Loonie pair ignores firmer prices of Canada’s main export item, WTI crude oil.

That said, WTI crude oil prices print 1.5% daily gains around $104.00 while extending the previous day’s recovery moves. The comments from the International Energy Administration (IEA) and hopes of a deal between the US and Iran seem to jostle with the fresh geopolitical fears from Russia to propel the oil prices.

Read: WTI surpasses $100.00 as IEA renews supply shortage worries

Russia’s recently easy tone in peace talks fails to underpin any optimism as the nation continues its invasion of Ukraine, ignoring the International Court of Justice’s (ICJ) order. Recently, the west has been flashing alarms over Moscow’s likely usage of chemical weapons. On the same line could be the comments from China’s Foreign Ministry that solidify the US allegations suggesting Beijing’s readiness to back Russia with military power in its invasion of Kyiv.

Additionally, a surprise uptick in China’s covid numbers, following a two-day reduction from record top, joins the market’s anxiety ahead of a telephone call between US President Joe Biden and his Chinese counterpart Xi Jinping to add to the risk-off mood.

On the positive side, Turkey is brokering a meeting between Russian President Putin and his Ukrainian counterpart Volodymyr Zelenskyy while the peace talks are also on, which in turn keeps the markets hopeful.

Amid these plays, the US Treasury yields remain downbeat and the stock futures also print losses while the US Dollar Index (DXY) snaps a three-day downtrend but stays negative on a weekly basis.

Looking forward, Canada’s Retail Sales release for January, expected 2.4% MoM, versus -1.8% prior, will be important for the USD/CAD traders after the Fed’s rate-hike strengthened hopes for the Bank of Canada’s another rate-hike. Additionally, the risk catalysts and oil price moves are important too.

Technical analysis

A clear downside break of 50-DMA and 100-DMA, as well as the bearish MACD signals, direct USD/CAD sellers towards the 200-DMA and an upward sloping support line from June 2021, respectively around 1.2605 and 1.2585.

Alternatively, a convergence of the 50-DMA and 100-DMA, around 1.2685-90, restricts short-term upside moves of the USD/CAD prices.