USD/CAD bulls seeking break of 1.2680 for the open

• USD/CAD has been climbing the dynamic daily support, needs to break 1.2680. 
• US dollar collects a safe-haven bid as global growth risks move to the fore. 

USD/CAD ended last week on the front foot as investors become concerned over cracks in the global recovery and heightened risks of the Delta coronavirus variant. Closing at 1.2687, USD/CAD was pressured to the upside on Friday, ending some 0.19% higher after travelling between a low of 1.2582 and a high of 1.2694.

USD/CAD coronavirus risks mounting

The bulls have been in charge for the summer, for the most part, but as the price moved in on the 1.2650 area,  a convergence of central bank themes started to weigh on the greenback. 

Additionally, commodities have been treading firmer grounds of late which has also supported the Canadian dollar. However, there are signs that the Chinese economic recovery has stumbled at the same time that fresh global outbreaks of the Delta and the highly contagious variant of the coronavirus disease have reemerged.

On Friday, the US stock markets were under pressure a the themes weighed. This provided support for the greenback. The S&P 500 fell for the fifth consecutive day, finishing 0.8% lower.  The 10-year yield rallied by over 3.2%, firming in accumulation territories and the US dollar, as measured by the DXY,  was firmer, adding 0.13% on the day. Despite the stronger dollar, WTI and Copper gained 2.1% and 3.3%, respectively, helping the CRB index to end on a positive note, higher by near 0.9% which was likely support for the loonie that is correlated to oil prices. 

USD/CAD developing themes 

The Canadian dollar was supported on strong jobs data which puts into question the Bank of Canada's recent pause in asset purchasing.  There will be sentiment for a faster pace of the tapering that could see quantitive easing unwound in full by the end of 2021. Governor Macklem said that after QE ends, the bank will pivot to a "reinvestment phase" that will reinvest maturing securities to maintain the size of its balance sheet. 

He explained that those purchases likely will average about CAD1 bln per week and said "eventually, the reinvestment phase will end, and we will stop purchasing bonds to replace the ones that are maturing.  It is reasonable to expect that when we do eventually need to reduce monetary stimulus, our first move will be to raise the target for the overnight rate - our policy interest rate."

Meanwhile, the election campaign in Canada will move to the fore with just a small number of days until the vote. Neither of the Liberals or Conservatives is likely to secure a full majority in the House which makes for uneven ground for the currency. Additionally, themes to watch will be US and Canadian Consumer prices.

''Headline is expected at 3.9% YoY vs. 3.7% in July, while common core is expected to remain steady at 1.7% YoY.  Canada also reports July manufacturing sales (-1.0% m/m expected) Tuesday, August existing home sales Wednesday, and August housing starts and July wholesale trade sales (-2.0% m/m expected) Thursday,'' analysts at Brown Brothers Harriman said. 

USD/CAD technical analysis

Following the advance through the 50-day EMA, the bulls are seeking an extension in the price from a daily perspective, having reach found support in the Fibonacci scale and breaking the dynamic resistance.

From a 4-hour perspective, the price is on the verge of a retest of the trendline support and confluence of the prior highs of the neckline in the W-formation:

Should the structure hold initial tests, the bias will be confirmed to the upside.  1.2680 will be important in this regard.