Oil recovery drags USD/CAD further below 1.2900 level

Tracking recovery in crude oil prices, the USD/CAD pair has now dropped back below 1.2900 handle to currently trade near day's through level at 1.2875.

Crude oil prices are witnessing a recovery despite of the API report on Tuesday that showed US crude stocks increased by 3.4 million barrels in the last week. Later during NA session, EIA will release its weekly inventories data at 02.30 GMT. With a high degree of correlation between crude oil prices and the USD/CAD pair, and in absence of any major economic release from the US, any further recovery in oil prices could further support appreciation for the Canadian Dollar thus dragging the USD/CAD pair lower.

The pair's recovery from last week's multi-month low halted at the very important 1.3000 psychological mark, which now seems to have turned a significant resistance as it did on the way down, as an important support. The pair is now sustaining its weakness below 1.2900 and hence seems vulnerable to continue drifting lower from current levels.

Technical levels to watch

From current levels, the pair could be headed back to a short-term descending trend-channel resistance break-point turned support near 1.2850-45, which if broken might open room for further depreciation towards retesting 1.2820-1.2800 handle support.

Conversely, a move back above 1.2900 level might confront immediate resistance at day's peak near 1.2945-50 area. Only a convincing strength back above 1.2950 resistance would provide the required momentum to lift the pair beyond 1.3000 psychological mark resistance, towards April month daily closing highs strong resistance near 1.3135-40 area.