USD/CAD jumps back closer to mid-1.2500s, lacks follow-through

• A modest USD rebound assisted USD/CAD to attract some buying near the 1.2480-70 region.
• A turnaround in the global risk sentiment extended some support to the safe-haven greenback.
• A pullback in crude oil prices undermined the loonie and provided an additional lift to the pair.

The USD/CAD pair recovered over 60 pips from intraday lows and refreshed daily tops, around the 1.2540 region during the mid-European session.

A turnaround in the global risk sentiment – as depicted by an intraday decline in the US equity futures – helped the US dollar to stall its recent decline to the lowest level since early March. Apart from this, a pullback in crude oil prices undermined the commodity-linked loonie and extended some support to the USD/CAD pair.

The pair once again found some support near the 1.2480-70 area and has now moved into the positive territory for the second consecutive session on Tuesday. That said, a fresh leg down in the US Treasury bond yields might hold the USD bulls from placing aggressive bets and keep a lid on any further upside for the USD/CAD pair.

The Fed's stubbornly dovish view that any spike in inflation will be transitory now seemed to have convinced investors that interest rates will remain near zero levels for a longer period. This, along with the recent sharp pullback in the US Treasury bond yields from the 14-month peak touched last month might cap any meaningful USD gains.

Investors might also refrain from placing aggressive bets, rather prefer to wait on the sidelines ahead of the latest monetary policy update by the Bank of Canada on Wednesday. This makes it prudent to wait for some strong follow-through buying before positioning for any further recovery move amid an empty US economic docket on Tuesday.

Technical levels to watch