• US Dollar gains momentum during the American session amid risk aversion.
• DXY reverses sharply, rises from 110.70 to 111.50.
• USD/CAD rebounds more than 120 pips from daily lows.

The USD/CAD rose sharply from the lowest level in two days around 1.3530 to 1.3658, reaching a fresh daily high. The bounce was triggered by a rally of the US Dollar across the board following the release of US economic data.

The greenback was falling but it reversed it course dramatically following the ISM Manufacturing PMI and the Jobs Opening reports. Both reports surpassed expectations. After the numbers, US stocks turned sharply to the downside, and US yields soared.

The Dow Jones is falling by 0.51% after a positive opening while the S&P 500 drops by 0.45%. The US 10-year yield rose from 3.92% to 4.07 while the 2-year climbed from 4.40% to 4.53%, hitting the highest since October 21.

The Canadian S&P Global Manufacturing dropped from 49.8 to 48.8, below the 49.2 of market consensus. Late on Tuesday, Bank of Canada Governor Tiff Macklem will deliver a speech.

Market participants are focused on the FOMC meeting that started on Tuesday. The Federal Reserve is expected to announce a 75 bps rate hike. “The decision will bring policy to a level at which the Committee might feel more comfortable in shifting to a steadier hiking pace. The exact timing, however, will highly depend on the CPI data before the Dec meeting. Powell might offer some hints in the post-meeting presser”, mentioned analysts at TD Securities.

Levels to watch

On the upside, above 1.3660, the next resistance stands at 1.3685 (Oct 31 high), followed by 1.3755. On the downside, support might be located at 1.3605/00 and then at 1.3580 and the 1.3500 zone. A daily close below 1.3500 would open the doors to more losses.