• USD/CAD failed to capitalize on its intraday modest gains to the highest level since March 17.
• Rebounding crude oil prices underpinned the loonie and acted as a headwind for the major.
• Sustained USD buying helped limit any deeper losses as investors await the key US CPI report.

The USD/CAD pair struggled to preserve its intraday gains to a near four-week high and retreated to the daily low, around the 1.2630-1.2625 region heading into the North American session.

A goodish recovery in crude oil prices underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair. On the other hand, the US dollar stood tall near its highest level since May 2020 amid the prospects for a more aggressive policy tightening by the Fed. This should help limit deeper losses for spot prices ahead of the crucial US consumer inflation figures, scheduled for release at 12:30 GMT.

From a technical perspective, the overnight sustained strength above the 1.2600 mark and a subsequent move beyond the very important 200-day SMA favours bullish traders. The constructive outlook is reinforced by the fact that technical indicators on the daily chart have just started gaining positive traction. The technical setup suggests that the USD/CAD pair might have formed a temporary bottom near the 1.2400 round figure.

That said, it will be prudent to wait for some follow-through buying beyond the daily swing high - the 50% Fibonacci level of the 1.2901-1.2403 fall - before positioning for any further gains. The USD/CAD pair could then accelerate the momentum towards reclaiming the 1.2700 round-figure mark en-route the next relevant hurdle near the 1.2715-1.2720 region, or the 61.8% Fibo. level.

On the flip side, the 1.2600 mark, or the 38.2% Fibo. level, now seems to protect the immediate downside ahead of the 1.2555 region and the 23.6%  Fibo. level, around the 1.2525 area. A convincing breakthrough, leading to subsequent weakness below the 1.2500 psychological mark, will make the USD/CAD pair vulnerable to slide back to challenge the YTD low, around the 1.2400 mark.

USD/CAD daily chart

Key levels to watch