USD/CAD struggles near one-week lows, below 1.2800 mark

• USD/CAD witnessed some selling for the third consecutive session on Wednesday.
• The prevalent upbeat market mood continued weighing on the safe-haven USD.
• A modest uptick in oil prices underpinned the loonie and added to the selling bias.

The USD/CAD pair edged lower through the early European session and was last seen hovering near the lower end of its daily trading range, around the 1.2785 region.

A combination of factors failed to assist the pair to build on the previous day's modest bounce of around 35-40 pips from over one-week lows, instead prompted some fresh selling on Wednesday. The US dollar slumped to fresh multi-year lows amid increasing bets about the likelihood of more US financial measures, despite a delay in increased stimulus paychecks.

It is worth reporting that Senate Majority Leader Mitch McConnell on Tuesday blocked an effort to hold an immediate vote to raise the COVID-19 relief payments to $2,000. The development was largely offset by the US Treasury Secretary Steve Mnuchin's announcement that qualified Americans could begin receiving the stimulus check of $600 from Tuesday night.

Adding to this, expectations for a strong global economic recovery in 2021 and that the Fed will keep interest rates low for an extremely long time remained supportive of the prevalent upbeat market mood. The risk-on flow was seen as another factor that weighed on the greenback's safe-haven status and was seen as a key factor exerting pressure on the USD/CAD pair.

On the other hand, a modest uptick in crude oil prices underpinned demand for the commodity-linked currency – the loonie. This further contributed to the offered tone surrounding the USD/CAD pair, which remained depressed for the third consecutive session. That said, thin trading volumes on the back of year-end holidays might help limit the downside.

Market participants now look forward to second-tier US economic data – Goods Trade Balance, Chicago PMI and Pending Home Sales – for some impetus. This, along with the broader market risk sentiment might influence the USD price dynamics. Apart from this, US crude oil inventories data might further contribute to produce some opportunities around the USD/CAD pair.

Technical levels to watch