USD/CAD clings to strong recovery gains near 1.2670-75 area, lacks follow-through

• USD/CAD attracted some buying near 100-DMA on Monday amid resurgent USD demand.
• A generally positive risk tone capped gains for the safe-haven USD in quiet holiday trading.
• Investors also seemed reluctant ahead of the OPEC+ meeting and the key US macro releases.

The USD/CAD pair maintained its bid tone through the early part of the European session and was last seen trading just a few pips below the daily high, around the 1.2670-75 region.

The pair managed to defend the 100-day SMA support and gained some positive traction on the first trading day of 2022, snapping three consecutive days of the losing streak. The uptick was sponsored by a strong pickup in the US dollar demand and allowed the USD/CAD pair to recover a part of Friday's losses to an over three-week low.

Growing market bets the Fed will raise rates earlier than most other major central banks, along with elevated US Treasury bond yields acted as a tailwind for the greenback. It is worth recalling that the yield on the benchmark 10-year US government bond recorded the largest yearly increase since 2013 and ended 2021 above the 1.50% threshold.

That said, the underlying bullish sentiment – as depicted by a generally positive tone around the equity markets – capped the upside for the safe-haven greenback. Apart from this, an uptick in crude oil prices underpinned the commodity-linked loonie and kept a lid on any meaningful gains for the USD/CAD pair, at least for the time being.

Investors also seemed reluctant to place aggressive bets amid quiet holiday trading and ahead of the OPEC+ meeting on Tuesday. The alliance is expected to stick to the plan to add 400,000 barrels per day of supply in February. Hence, the market focus will remain glued to important US macro data scheduled at the beginning of a new month.

This week's US economic docket highlights the release of ISM PMIs and the ADP report on private-sector employment, followed by the closely-watched US monthly jobs report (NFP) on Friday. Apart from this, traders will take cues from Canadian monthly employment details before positioning for the next leg of a directional move for the USD/CAD pair.

Technical levels to watch