USD/CAD Price Analysis: Set-up favours bullish trades, move beyond 1.2700 mark awaited

• A combination of factors assisted USD/CAD to attract some dip-buying on Friday.
• Hawkish Fed expectations, rallying US bond yields acted as a tailwind for the USD.
• Weaker oil prices undermined the loonie and remained supportive of the move up.

The USD/CAD pair managed to rebound around 35-40 pips from daily lows and was last seen trading in the neutral territory, around the 1.2675 region during the early North American session.

Expectations for an imminent Fed taper announcement, along with a softer risk tone helped revive demand for the safe-haven US dollar. Apart from this, sliding oil prices undermined the commodity-linked loonie and assisted the USD/CAD pair to attract some dip-buying on Friday.

Looking at the broader picture, the pair has been oscillating in a familiar trading range over the past one week or so. This constituted the formation of a rectangle on short-term charts and points to indecision among traders, warranting caution before placing aggressive directional bets.

Meanwhile, technical indicators on the daily chart maintained their bullish bias and have been gaining some positive traction on hourly charts. This, in turn, supports prospects for an eventual breakout to the upside amid the prevalent bullish sentiment surrounding the greenback.

That said, it will still be prudent to wait for a sustained move beyond the 1.2700 round figure before positioning for any further appreciating move. The USD/CAD pair might then aim to surpass monthly swing highs, around the 1.2760-65 region, and aim to reclaim the 1.2800 mark.

On the flip side, the lower boundary of the mentioned trading range, around the 1.2615-10 area, coincides with the 200-period SMA on the 4-hour chart. This should act as a strong base for the USD/CAD pair, which if broken decisively might prompt some technical selling.

The next relevant support is pegged near the 1.2600-1.2590 region. A convincing break below has the potential to drag the USD/CAD pair further towards the very important 200-day SMA, currently around the 1.2520 region, en-route the key 1.2500 psychological mark.

USD/CAD 4-hour chart

Technical levels to watch