USD/CAD witnessed some selling

USD/CAD witnessed some selling The USD/CAD pair remained on the defensive through the European session and was last seen flirting with the 100-day SMA, around the 1.2625 region. The pair witnessed some selling for the third successive day on Monday and extended last week's retracement slide from levels beyond the 1.2800 round-figure mark. Against the backdrop of Friday's upbeat Canadian employment details, an uptick in crude oil prices underpinned the commodity-linked loonie and exerted some pressure on the USD/CAD pair. The downside, however, seems cushioned amid a strong pickup in the US dollar demand. The USD made a strong comeback on the first day of a new week amid elevated US Treasury bond yields, bolstered by the prospects for a faster policy tightening by the Fed. The disappointment from the headline NFP print, showing that the economy added 199K jobs in December, was offset by a fall in the unemployment rate to 3.9%. Adding to this, wages reported another month of strong growth and reinforced market bets for an eventual Fed lift-off in March.

In fact, the yield on the benchmark 10-year US government bond climbed above the 1.80% threshold for the first time since January 2020. Adding to this, the US 2-year notes, which are highly sensitive to rate hike expectations along with the 5-year note, held steady near a two-year high and acted as a tailwind for the greenback. That said, a generally positive tone around the equity markets kept a lid on any meaningful gains for the safe-haven buck. Nevertheless, the USD/CAD pair now seems vulnerable to prolonging its recent corrective pullback from a one-year high touched in December. Some follow-through selling below the 1.2620 region will reaffirm the negative bias and pave the way for further losses. The pair might then break below the 1.2600 mark and accelerate the downward trajectory towards testing the next relevant support near the 1.2540 area amid absent relevant market-moving economic releases.

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