USD/CAD bounces off lows, still in the red around 1.2765-70 region

• USD/CAD met with some fresh supply on Tuesday amid renewed selling around the greenback.
• COVID-19 jitters weighed on oil prices, which might undermine the loonie and help limit losses.
• Tuesday’s key focus will be on a US runoff election in Georgia and US ISM Manufacturing PMI.

The USD/CAD pair traded with a negative bias through the early European session, albeit has managed to trim a part of its intraday losses and was last seen hovering near the 1.2765-70 region.

The pair failed to capitalize on the previous day's solid bounce of around 130-35 pips from multi-year lows, instead witnessed some fresh selling during the first half of the trading action on Tuesday. The downfall marked the fifth day of a negative move in the previous six and was exclusively sponsored by the emergence of some fresh selling around the US dollar.

Hopes for a strong global economic recovery in 2021 remained supportive of the underlying bullish tone in the financial markets. This, along with the likelihood of more US fiscal stimulus and expectations that the Fed would keep rates lower for a longer period, continued denting the greenback's safe-haven status and exerted some downward pressure on the USD/CAD pair.

That said, uncertainty about a US runoff election in Georgia seemed to have tempered the enthusiasm. Voting for the election in Georgia begins later this Tuesday and the outcome of two Senate seats will determine the control of the chamber. The election will also have a big impact on the incoming US President Joe Biden's ability to pursue his preferred economic policies.

Meanwhile, concerns about the continuous surge in new COVID-19 cases and the imposition of fresh lockdowns in the UK dampened prospects for a recovery in the fuel demand. Adding to this, deadlocked talks about potential changes in February output weighed on oil prices. This, in turn, could undermine the commodity-linked loonie and help limit the downside for the USD/CAD pair.

This makes it prudent to wait for some follow-through selling before traders start positioning for the resumption of the USD/CAD pair's recent bearish trend. Tuesday's release of the US ISM Manufacturing PMI and developments surrounding the coronavirus saga might influence the USD price dynamics, and produce some short-term trading opportunities around the USD/CAD pair.

Technical levels to watch