USD/CAD clings to mild gains above 1.3500 despite downbeat Oil price

• USD/CAD grinds near intraday high after bouncing off three-week low.
• US Dollar rebound, easing optimism over China’s Covid updates weigh on Oil price.
• Holiday season, light calendar restricts immediate moves but firmer US Treasury yields keep USD/CAD buyers hopeful.

USD/CAD prints mild gains around 1.3530 as bulls and bears jostle during the first positive day for the Loonie pair in three.

The US Dollar rebound and the recent pullback in the Oil prices could be linked to the quote’s recovery. However, the holiday mood and a light calendar, not to forget fewer macros, keep the USD/CAD traders in check.

US Dollar Index (DXY) struggles to defend recent gains around 104.25, fading the bounce off a one-week low, amid sluggish US Treasury bond yields. In doing so, the greenback’s gauge versus the six major currencies also justifies the recently mixed US data, as well as mixed concerns surrounding the Fed’s next moves. Even so, receding fears of the US recession and easing optimism surrounding China’s Covid conditions seem to keep the DXY bulls hopeful.

Recently, a Researcher from the Federal Reserve Bank of San Francisco’s Economic Research Department ruled out odds favoring the US economic slowdown for at least the upcoming two quarters. That said, US Good Trade Balance for November improved to $-83.3B versus $98.8B prior but the US S&P/Case-Shiller Home Price Indices for October dropped to 8.6% YoY versus 9.7% expected and 10.4% previous readings.

In the last week, mixed readings of the US inflation and growth figures raised doubts about the Federal Reserve’s (Fed) hawkish move, especially after the US central bank appeared cautiously optimistic in its latest monetary policy meeting.

On a different page, China announced multiple measures to open national and international boundaries in a rush to convey the easing of COVID-19 fears. However, the US doubts the moves and probes the risk-on mood. The dragon nation initially ruled out the quarantine requirement for inbound travelers before stating that the nation will resume citizens' applications for ordinary passports for tourism and visits abroad from January 8, 2023. Even so, a US Official mentioned, per Reuters, that the US government may impose new COVID-19 measures on travelers to the United States from China over concerns about the "lack of transparent data" coming from Beijing.

Against this backdrop, the US Treasury yields remain stable while the stock futures print mild gains and the WTI crude oil extends the previous day’s pullback from a three-week high, down 0.22% intraday near $79.60 at the latest.

Given the market’s actions, as well as the light calendar and no major macros, the USD/CAD is likely to remain sidelined. It should be noted that the US Pending Home Sales for November which holds the market consensus of 0.6% versus -4.6% previous readings, will decorate the calendar.

Technical analysis

USD/CAD recovers from the 200-SMA, around 1.3500 by the press time, as the RSI (14) defends recovery from the oversold territory. Also supporting the Loonie pair’s rebound is the receding strength of the bearish MACD signals.

As a result, the USD/CAD rebound is likely to approach the 1.3570 resistance confluence including the one-week-old descending resistance line, as well as the previous support line from November 15.