• A combination of factors prompted fresh selling around USD/CAD on Tuesday.
• The downfall has now dragged the pair to descending trend-channel support.
• Slightly oversold conditions warrant caution before placing fresh bearish bets.

The USD/CAD pair continued losing ground through the first half of the European session and fell to the 1.2320 region, or over three-month lows in the last hour.

The dominant risk-on mood in the financial markets prompted aggressive selling around the safe-haven US dollar, which fell to three-week lows on Tuesday. Conversely, a fresh leg up in crude oil prices underpinned the commodity-linked loonie and exerted some downward pressure on the USD/CAD pair.

From a technical perspective, the pair has been trending lower along a downward sloping channel from September monthly swing highs, around the 1.2900 mark. Bearish trades might now wait for a sustained break through the channel support before placing fresh bets amid near-term oversold conditions.

A convincing break below the trend-channel support, currently around the 1.2325 region, will set the stage for an extension of the depreciating move. The USD/CAD pair might then turn vulnerable to break below the 1.2300 mark and accelerate the slide towards the next relevant support near mid-1.2200s.

On the flip side, any attempted recovery move might now confront immediate resistance near the 1.2370-75 region. This is closely followed by the overnight swing highs, around the 1.2400-1.2410 area, which if cleared decisively might trigger a near-term short-covering move around the USD/CAD pair.

That said, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the key 1.2500 psychological mark. The latter represents a confluence barrier comprising of the very important 200-day SMA and the top end of the mentioned channel.

USD/CAD daily chart

Technical levels to watch