• USD/CAD continues to gradually push lower, with the price action capped by a downtrend from the weekly higher.
  • At present, the pair trades around 1.2600, but if oil continues to recover next week the pair could return to 1.2600.

USD/CAD has slipped back under the 1.2650 level in recent trade from earlier session highs around 1.2680. The pair appears to have run into resistance in the form of a downtrend that has formed since the pair slipped back from earlier weekly highs close to 1.2750. Technicians will now eye a retest of earlier session lows around 1.2640, though market conditions are currently very thin amid the absence of US participants for Thanksgiving, meaning any decisive break lower will probably have to wait for next week.

At current levels around 1.2650, USD/CAD is nearly back to flat on the week. Given that the pair, when it was trading close to 1.2750, was nearly up by 1.0% on Monday, that is a pretty decent reversal lower. And that reversal lower comes despite a continued broad strengthening of the US dollar amid hawkish Fed vibes (comments from FOMC’s Mary Daly and the Fed minutes) and more strong US macro data.

The reason why CAD has been able to perform well is due to the recovery in oil prices after Tuesday’s underwhelming US (and global) crude oil reserve release. There is speculation that OPEC+ could shift output policy to compensate for the reserve releases at their meetings next week and this has helped oil markets recover. WTI is up more than 3.0% on the week.

Should OPEC+ refrain from further output hikes next week (to the anger of the US and other nations) and send oil prices shooting higher again, this could lend further support to the loonie and the recent bearish technical trend may continue. Traders would likely target a move back down towards the next key area of support at 1.2600.