USDCAD is trending higher but is in the middle of a pullback as seen on the 4-hour time frame. Price is retreating close to an area of interest marked by several inflection points.
The 61.8% level is holding as support near the rising trend line that’s been holding since mid-June. This is also in line with the 100 SMA dynamic inflection point that adds to its strength as support around 1.2550.
The 100 SMA is above the 200 SMA to confirm that the path of least resistance is to the upside or that support is more likely to hold than to break. Stochastic is already indicating oversold conditions or exhaustion among sellers, so turning higher would mean that buyers are taking over.
Once that happens, USDCAD could resume the climb to the swing high at 1.2811 or higher. A break below the trend line, on the other hand, could still lead to a bounce off the 200 SMA dynamic support near 1.2400.
The Loonie appears to be taking cues from crude oil prices, as the commodity has recovered from a sharp drop recently. Recall that the OPEC+ agreement to boost production led to a sharp drop in crude oil earlier this week.
The EIA reported a surprise build in stockpiles, suggesting that demand is fading as more businesses and consumers are concerned about the Delta variant spread. Combined with increased global supply, this could mean downside for the commodity and the correlated Loonie.
Meanwhile, the dollar has been taking advantage of risk-off flows, even as the Fed’s reluctance to taper or tighten is dampening the currency’s appeal.
Canada’s retail sales due on Friday could provide volatility for this pair, especially since both core and headline figures are slated to post another round of declines. The US has its flash manufacturing and services PMIs lined up.