USD/CAD bounces back above 1.2900 handle amid renewed weakness in oil

A sharp retracement in crude oil prices helped the USD/CAD pair to recover majority of its lost ground to currently trade with only marginal loss, at around 1.2915-20 band.

WTI crude oil erased major part of strong gains posted on Monday and is weighing on the commodity-linked currency - loonie. Moreover, a minor greenback pull-back, as measured by the overall US Dollar Index, also contributed to the pair's recovery from 7-day lows.

Ahead of today's release of US ISM services PMI, traders would have also been inclined to trim their bearish bets and take some profit off the table following a sharp slide of over 250-pips from last week's peak around mid-1.3100s. Hence, a stronger-than-expected PMI print might trigger a fresh bout of short-covering and help the pair to extend its recovery momentum. 

Technical levels to watch

From current levels, further recovery is likely to confront resistance at 100-day SMA, near 1.2940 region, above which the pair seems all set to reclaim 1.3000 psychological mark. On the flip side, 1.2887 (session low) now becomes immediate support to defend, which if broken is likely to extend the pair's downward trajectory initially towards 1.2860-55 intermediate support and eventually towards 1.2830 support (nearing August 26 low).