USD/CAD recovers further from two-month low, climbs to mid-1.2500s amid softer oil prices

• USD/CAD gained some positive traction on Friday and snapped seven days of the losing streak.
• Retreating oil prices undermined the loonie and assisted the pair to defend the 1.2500 mark.
• A positive risk tone weighed on the safe-haven USD and might keep a lid on any further gains.

The USD/CAD pair edged higher during the early part of the European session and climbed to a fresh daily high, around mid-1.2500s in the last hour.

Having defended the key 1.2500 psychological mark, the USD/CAD pair gained some bullish traction on Friday and recovered a major part of the overnight slide to the two-month low. This marked the first day of a positive move in the previous nine and was sponsored by modest downtick in crude oil prices, which tend to undermine the commodity-linked loonie.

The European Union remained split on imposing an oil embargo on Russia and eased growing market fears of a supply crunch. Adding to this, US energy secretary Jennifer Granholm said on Thursday that the United States and its allies were discussing a possible further coordinated release of oil from storage. This, in turn, weighed on the black liquid.

On the other hand, a generally positive tone around the equity markets undermined the safe-haven US dollar and held back bulls from placing aggressive bets around the USD/CAD pair. Even from a technical perspective, this week's convincing break and acceptance below the very important 200-day SMA warrants caution before confirming that the pair has bottomed out.

Market participants now look forward to the US economic docket, featuring the release of revised Michigan Consumer Sentiment Index and Pending Home Sales data. This, along with the broader risk sentiment and the US bond yields, will influence the USD. Traders will further take cues from oil price dynamics for some short-term opportunities around the USD/CAD pair.

Technical levels to watch