USD/CAD rallies to fresh two-week highs, around 1.2465 amid high oil prices.

• USD/CAD extends its recovery for the second day in a row, up 0.61%.
• Overall, US dollar strength across the board lifts the USD/CAD despite risk-on market sentiment.
• Rising crude-oil prices fail to lift the prospects of the CAD.

The USD/CAD climbs to fresh weekly highs, up 0.62%, trading at 1.2468 during the New York session at the time of writing. Investors’ mood is upbeat, portrayed by global equity indices in the green, except for the Dow Jones Industrial in the US, retracing some 0.12%. On Wednesday, the Fed announced the beginning of its pandemic-related QE reduction program at a pace of $15 billion, starting at the middle of November.

US Dollar bulls gained some ground against the loonie, despite higher crude oil prices, during the day, with Western Texas Intermediate (WTI) trading at $81.45, up more than 1%, failing to underpin the commodity-linked Canadian dollar. Furthermore, the US Dollar Index, which tracks the greenback’s performance against a basket of six peers, is firmly up more than a half percent, sitting at 94.38.

The US Dollar reaction to the Fed initially was as investors seemed to be convinced of a dovish taper. Nevertheless, Thursday’s price action has shown the opposite, as the US T-bond 2-year yield is retreating from almost 0.50% towards 0.40% threshold, as market participants backpedal against the possibility of a hike rate by the middle of 2022. Now the odds of the abovementioned dropped to 50%, as Chairman Powell pushed back against rising rates.

Dissecting the Fed’s message, the US central bank is expected to end the taper by June of 2022. But, it left the door open for adjustments of its program, hedging against a possibility of stickier than expected inflation that could prompt the Fed to react as quickly as they can. However, they reiterated their transitory posture on inflation, as Chair Powell admitted that the supply constraints are lasting longer than anticipated and could persist well into next year.  He predicted that inflation would move down in Q2 or Q3.

On the macroeconomic front, the Canadian docket featured the International Merchandise Trade for September, which showed a surplus of $1.8B versus a $0.43B foreseen by analysts.

On the US front, the Bureau of Labor Statistics (BLS) reported the Initial Jobless Claims for the week ending on October 29, which rose to 269K, better than the 277K estimated by economists, adding to the improvement of the labor market, as it is the fourth consecutive week of drops.

USD/CAD Price Forecast: Technical outlook

In the daily chart, the USD/CAD is closing near the November 3 high at 1.2456, which saw on that day, a retracement towards 1.2400. The daily moving averages (DMA’s) are located above the spot price, meaning CAD bulls are in control. Nevertheless, the greenback has shown some strength, as the pair Is closing to the 200-DMA, which sits at 1.2479. 

Furthermore, the November 3 high around 1.2456, coupled with the 200-DMA some 30 pips above, could be a substantial hurdle to overcome for USD bulls, but in case of breaching above of it, it would open the door for further gains, being 1.2500 the first supply area. Once that is breached, the following resistance level would be the confluence of the 50 and 100-DMA around the 1.2530-50 region.

On the flip side, failure of a daily close above 1.2456 would keep USD/CAD bears in charge, exposing the 1.2400 figure as the first support level.