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USD/CAD consolidates below recent highs even with oil strong

December 30, 2021 9:13:08

The strong underlying bull trend in USD/CAD has paused over the last few days. Positive risk sentiment and higher equities, along with rising oil prices would ordinarily help the loonie. But weak seasonal trends generally tend to weigh on CAD at this time of the year, and into the new year too. The major may end up very close to where it started 2021 (1.2725).

Going forward, if the global oil demand story continues to remain buoyant, CAD should remain supported. The market may then focus on the chances of earlier Bank of Canada action ahead of its meeting at the end of January. There is currently around a coin toss chance of a rate hike.

USD/CAD neutral into new year

The dollar continues to hold on to support around 1.2780 after numerous tests of this support area this week. Solid underlying upward trend momentum remains even after the pair failed to sustain levels near the August high above 1.29.

The USD has tended to look bid at the top of the broader range on several occasions this year. This means the bullish consolidation over recent sessions could see another retest towards 1.29.

Keep an eye on the daily RSI which diverged with spot after that high print at 1.2963 before Christmas. That bearish signal saw a reversal in the pair back to August support around 1.28. The 1.2750/65 zone is now key short-term support.

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