USD/CAD Price Analysis: Set-up favours bulls, move to 1.3900 remains on the cards

• USD/CAD retreats from its highest level since May 2020 amid a modest USD pullback.
• Sliding oil prices undermine the loonie and help limit the downside, for the time being.
• Bulls now await sustained strength beyond the 1.3830-40 area before placing fresh bets.

The USD/CAD pair attracts some dip-buying near the 1.3760 region and stalls its intraday pullback from the highest level since May 2020 touched earlier this Tuesday. Spot prices climb back to the 1.3800 mark during the early North American session and look to build on the recent rally witnessed over the past week or so.

Worries that a global economic downturn and rising COVID-19 cases in China will hurt global fuel demand drag crude oil prices lower for the second straight day. This, in turn, undermines the commodity-linked loonie and acts as a tailwind for the USD/CAD pair. That said, an intraday downtick in the US dollar could cap the upside.

From a technical perspective, the USD/CAD pair, so far, has been struggling to find acceptance or build on the momentum beyond the 1.3830-1.3840 supply zone. This makes it prudent to wait for strong follow-through buying beyond the daily swing high, around the 1.3855 region, before positioning for a further appreciating move.

The USD/CAD pair might then accelerate the momentum and aim to reclaim the 1.3900 round-figure mark. The next relevant hurdle is pegged near the 1.3925-1.3930 region, above which spot prices could climb further towards the 1.4000 psychological mark.

On the flip side, the 1.3760 area, or the daily low, now seems to act as immediate support. Any further downfall could be seen as a buying opportunity and remain limited near the 1.3700 mark. The latter should act as a pivotal point for short-term traders, which if broken decisively might prompt some technical selling.

The USD/CAD pair might then turn vulnerable to extend the corrective pullback towards the 1.3600 level before eventually sliding back to the monthly swing low, around the 1.3500 psychological mark.

USD/CAD 4-hour chart

Key levels to watch