USD/CAD looks to be rolling over into 2022
The strong underlying bull trend in USD/CAD has paused over the last few days. Support from gains in equities and oil prices pressured the major into the high 1.27s in recent days from the mid-1.29s before the Christmas period.
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, the outlook for the oil market will really depend on how demand plays out, with the market currently looking through the Omicron uncertainty to better times.
CAD should remain supported in this scenario, especially if oil remains anchored above $75.
Strengthening risk appetite will also potentially push USD/CAD lower. Traders will then focus on the chances of earlier Bank of Canada action in the new year ahead of its meeting at the end of January. There is currently around a coin toss chance of a rate hike.
Technically, the dollar is trying to hold on to support around 1.2780 after numerous tests of this support area this week. Underlying upward trend momentum evident earlier in the week is now dissipating, especially 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 consolidation over recent sessions might not see another retest towards 1.29. But it is also worth watching 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.
Bearish momentum has picked up on shorter timeframes which means prices could test trendline support from the October low at 1.2745.