• USD/CAD scaled higher for the third straight day and shot to over a one-month high on Monday.
• Sliding oil prices undermined the loonie and remained supportive amid sustained USD buying.
• The technical setup favours bullish traders and supports prospects for additional near-term gains.

The USD/CAD pair gained traction for the third successive day on Monday and climbed to a six-week high, around the 1.2765-1.2770 region during the first half of the European session.

The momentum reaffirmed last week's bullish breakout through the 1.2650 hurdle, or the 50% Fibonacci retracement level of the 1.2901-1.2403 downfall and was sponsored by a combination of factors. Crude oil prices dropped to a near two-week low, which undermined the commodity-linked loonie and acted as a tailwind for spot prices amid sustained US dollar buying.

Looking at the broader picture, acceptance above the 1.2700 mark and sustained strength beyond the 61.8% Fibo. level could be seen as a fresh trigger for bullish traders. The constructive outlook is reinforced by the fact that technical indicators on the daily chart are holding in the positive territory and are still far from being in the overbought zone.

This, in turn, supports prospects for a further near-term appreciating move towards an intermediate hurdle near the 1.2780-1.2785 region en-route the next relevant resistance near the 1.2800-1.2810 area. Some follow-through buying should pave the way for additional gains and allow bulls to aim back to conquer the 1.2900 mark, or the YTD peak touched in March.

On the flip side, the 1.2700 mark (61.8% Fibo. level) now seems to protect the immediate downside and any further pullback could be seen as a buying opportunity. This, in turn, should help limit losses near the 50% Fibo. level resistance breakpoint, around the 1.2650 region. The latter should act as a pivotal point and strong base for the USD/CAD pair.

A convincing break below will negate the near-term positive outlook and prompt some technical selling. The USD/CAD pair might then turn vulnerable to weakening further below the 38.2% Fibo. level, around the 1.2600-1.2590 region, and accelerate the slide towards the 1.2560-1.2555 support. The downward trajectory could get extended towards the 1.2500 psychological mark.

USD/CAD daily chart

Key levels to watch