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USD/CAD reverses daily losses, approaches 1.27 on greenback strength

  • Canadian trade deficit shrinks more than expected.
  • USD/CAD drops to fresh 6-week lows before gaining traction.
  • DXY preserves strength, sticks to daily gains above 93.

The USD/CAD pair started the day under pressure on Tuesday as the modest recovery witnessed in crude oil prices allowed the commodity-linked loonie to gain strength against the greenback. The pair extended its losses in the early NA session following the data from Canada and renewed its lowest level since late December at 1.2624. However, the pair reversed course as greenback gained traction and recovered toward the 1.27 handle. As of writing, the pair was trading at 1.2694, gaining 0.15% on the day.

The data released by the Statistics Canada revealed that the merchandise trade deficit with the world eased to $1.5 billion in October from $3.4 in September amid rising exports and decreasing imports. On the other hand, the trade balance from the United States came in at $-48.7 billion, missing the market expectation of $-47.5 billion. Moreover, the PMI data released by the IHS Markit and the ISM in the U.S. both showed that the business activity in the service sector expanded at a slower-than-anticipated rate in November.

Despite the dismal data, however, the US Dollar Index continued to push higher above the 93 mark in the NA session as investors continue to price the expectations of the Fed adopting a more hawkish stance in 2018 amid rising economic activity through tax cuts. At the moment, the DXY is at 93.40, adding 0.4% on the day.

Technical levels to watch

 The pair could face the initial resistance at 1.2750 (20-DMA) ahead of 1.2835 (Nov. 21 high) and 1.2880 (200-DMA). On the downside, supports align at 1.2620 (daily low), 1.2560 (100-DMA) and 1.2500 (psychological level). 

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