USD/CAD snaps three-day fall to poke 1.2700 on sour sentiment, weak oil prices

• USD/CAD takes the bids to refresh intraday top, rises the most since Monday.
• Virus woes spread outside Eurozone amid fears of a new variant, light calendar, heavy yields also propel the pair.
• Oil prices drop as SPR releases join fears of softer demand due to COVID-19.
• No major data/events on calendar but risk catalysts are the key to follow for fresh impulse.

USD/CAD refreshes intraday high to 1.2693 to mark the first positive day in the last four with 0.36% daily gains by the press time of early Friday. In doing so, the Loonie pair takes clues from the US dollar’s strength and the downbeat prices of Canada’s main export item, namely WTI crude oil.

In addition to a jump in the virus cases inside Eurozone, fears of a rigorous virus variant that is immune to the vaccines and spreads faster also weigh on the market sentiment, which in turn underpin the US dollar’s safe-haven demand.

While the risk-off mood weighs on the commodities and takes oil with it, plans of the SPR (Strategic Petroleum Reserves) releases from the US, China, Japan and India seem to exert additional downside pressure on the WTI crude oil prices, down 2.11% intraday around $76.40 at the latest.

Poland, Germany and France struggle to defend their “no national lockdown” concerns whereas chatters of a faster spreading virus variant add to the risk-off mood. “Germany crossed the threshold of 100,000 COVID-19-related deaths on Thursday with a surge in infections posing a challenge for the new government,” said Reuters.

The word also spreads that the recently found version of the coronavirus, with a formal name of B.1.1.529, is linked to South Africa and is immune to the vaccines. For the same, the World Health Organization (WHO) has called for a special meeting on Friday and may announce it as the variant of concern.

Amid these plays, the US 10-year Treasury yields drop six basis points (bps) to 1.583%, extending Wednesday’s pullback from the monthly peak. Additionally portraying the risk aversion are the downbeat prints of the S&P 500 Futures, -0.80% intraday, as well as the Asia-Pacific stocks.

As virus woes are in the driver’s seat, COVID-19 updates will be the key for USD/CAD prices, not to forget the US traders’ reaction to the change in risk appetite amid a light calendar.

Technical analysis

A clear upside break of the 61.8% Fibonacci retracement (Fibo.) of August-October downside, near 1.2700, becomes necessary for the USD/CAD bulls to retake controls.