USD/CAD aims to regain 1.3800 as oil retreats, Canada Retail Sales eyed

• USD/CAD picks up bids to pare weekly losses.
• Oil prices reversed from one-week high as hopes of China demand, supply crunch wanes amid recession fears.
• Yields remain firmer around multi-year high, underpinning USD demand.
• Canada Retail Sales for August will be crucial amid a light calendar, risk catalysts are more important for clear directions.

USD/CAD licks its wounds during a quiet start to Friday’s trading in Asia, following the volatile day that refreshed the weekly low before reversing the move. Even so, the Loonie pair braces for the weekly loss.

The quote’s latest rebound could be linked to the market’s risk aversion, as well as softer prices of Canada’s main export item WTI crude oil. Additionally, the cautious mood ahead of Canada’s monthly Retail Sales for August also underpins the recovery moves.

WTI crude oil remains pressured around $84.30, after a failed attempt to weekly gain due to the firmer US inventories and news surrounding China’s easing of quarantine rules. The reason could be linked to the growing fears of recession, which in turn underpin the US Treasury yield and the US dollar. “Recessions in the euro area and the UK are inevitable, as is a period of contraction in the US next year,” stated the Australia and New Zealand (ANZ) Banking Group in its latest report.

Elsewhere, a slump in Canada’s Employment Insurance Beneficiaries Change by 4.1% in August versus addition of 2.9% in the previous readings joined initial optimism to weigh on the USD/CAD prices before the risk-off mood recalled the buyers.

On the other hand, US Initial Jobless Claims eased to 214K for the week ended on October 07 versus 230K expected and a revised down 226K prior. Further, Philadelphia Fed Manufacturing Survey Index dropped to -8.7 for October versus the -5 market consensus and -9.9 previous reading. Additionally, US Existing Home Sales rose past 4.7M expected to 4.71M but eased below 4.78M prior. Recently, Federal Reserve Governor Lisa Cook mentioned that ongoing rate increases will be required.

While portraying the mood, Wall Street closed in the red following an initially upbeat performance while the US 10-year Treasury yields rose to the highest since 2008.

Moving on, risk catalysts will be important to watch for fresh impulse ahead of Canada’s Retail Sales for August, expected 0.2% MoM versus -2.5% prior, which in turn could weigh on the USD/CAD prices if other things remain positive to the Loonie buyers. Also important will be the Fedspeak and the bond market moves.

Technical analysis

USD/CAD pair’s recovery from the 21-day EMA, around 1.3670 by the press time, needs validation from the 1.3800 level to convince buyers.