USD/CAD Price Analysis: Recovers from multi-week low, upside potential seems limited

• USD/CAD staged an intraday bounce from a fresh multi-week low touched earlier this Thursday.
• Geopolitical risks continued benefitting the safe-haven USD and acted as a tailwind for the pair.
• Modest pullback in oil prices undermined the loonie and further extended support to the major.

The USD/CAD pair reversed an early European session dip to sub-1.2600 levels, or the lowest level since January 26 and was last seen trading nearly unchanged for the day.

Crude oil prices witnessed modest pullback from the multi-year high amid reports that the next round of the Russia-Ukraine peace talks could begin at 12:00 GMT on Thursday. This, in turn, undermined the commodity-linked loonie and extended some support to the USD/CAD pair.

On the other hand, concerns about the economic impact of surging commodity prices following Russia's invasion of Ukraine continued underpinning the safe-haven US dollar. This was seen as another factor that assisted the USD/CAD pair to attract some buying near the 1.2585 area.

From a technical perspective, the overnight post-BoC slide below the 1.2650 horizontal support and the February monthly low, around the 1.2635 region, favours bearish traders. Hence, any meaningful recovery could be seen as a selling opportunity and run the risk of fizzling out quickly.

The negative outlook is reinforced by the fact that technical indicators on the daily chart have just started drifting into the bearish territory and are still far from being in the oversold zone. This warrants some caution before confirming that the USD/CAD pair has bottomed out.

Meanwhile, any subsequent move up is more likely to confront immediate resistance near the 1.2650 support breakpoint. The next relevant hurdle is pegged near the 1.2685 region ahead of the 1.2700 mark, which if cleared decisively could negate the near-term bearish outlook.

On the flip side, weakness back below the 1.2600 mark would make the USD/CAD pair vulnerable to test the very important 200-day SMA, around mid-1.2500s. The downward trajectory could further get extended and drag spot prices further towards the key 1.2500 psychological mark.

USD/CAD daily chart

Levels to watch