USD/CAD stays depressed below 1.2900 as oil rebounds, DXY eases ahead of Fed’s showdown

• USD/CAD drops back towards six-week low flashed the previous day.
• Oil prices recover on headlines concerning US-China, Europe favors risk appetite.
• US dollar braces for Fed’s 0.75% rate hike with eyes on Powell.

USD/CAD reverses the previous day’s corrective pullback from the 1.5-month low heading into Wednesday’s European session. In doing so, the Loonie pair takes clues from the softer US dollar, as well as justifies the recent improvement in the prices of Canada’s key export item WTI crude oil.

That said, WTI crude oil stays firmer around $95.00, after reversing from the weekly top the previous day. The black gold’s latest gains could be linked to the softer US dollar, as well as the cautious optimism.

The US Dollar Index (DXY) marks the biggest daily loss in 12 days, down 0.30% intraday around 106.90 by the press time. It’s should be noted that the risk appetite improves amid chatters surrounding the US-China ties and the European energy crisis.

Hopes from the US President’s readiness for a virtual meeting with his Chinese counterpart Xi Jinping, appear to have favored the market’s risk-on mood of late. On the same line could be the headlines raising hopes that the region’s policymakers are also in talks with Iran and Nigeria to acquire energy resources. Recently, Germany’s Gas Regulator's Chief said, per Reuters, that the next phase of a gas emergency may not need to be triggered in the coming days and weeks as long as we can still add gas to storage.

Amid these plays, the S&P 500 Futures rise 0.85% intraday whereas the US 10-year Treasury yields rise 2.0 basis points (bps) to 2.80% at the latest.

It’s worth noting that the downbeat US data and fears of economic slowdown, mainly backed by the International Monetary Fund (IMF) and the global rating agency Moody’s appeared to have propelled the US dollar’s safe-haven demand previous day.

Looking forward, USD/CAD traders should pay attention to the risk catalysts, as well as the US Durable Goods Orders for June, expected -0.4% versus 0.8% prior, for fresh impulse. Also important will be how Fed Chairman Jerome Powell manages to tame inflation and reject recession fears, as well as the concerns surrounding the European energy crisis.

Technical analysis

USD/CAD remains on the seller’s radar unless crossing the 1.2925-30 resistance confluence, including the 200-HMA and the upper line of the stated triangle. That said, the 1.2822-16 horizontal area comprising the weekly descending triangle’s support line and the recent trough lure the bears.