USD/CAD struggles to hold above 1.25 post-Canada data

After edging lower to a fresh 5-day low at 1.2494 during the European trading hours, the USD/CAD pair is having a difficult time staging a meaningful recovery. As of writing, the pair was trading at 1.2498, losing 0.42% on the day.

The selling pressure witnessed on the pair seems to be caused by a broad-based USD sell-off and crude oil's recovery on Tuesday. After rising to a 10-week high at 94.10 on the back of the employment report from the U.S., the US Dollar Index started a technical downward correction and eased to 93.09 today. At the moment, the index was at 93.23, losing 0.34% on the day. The greenback's weakness seems to be a product of profit taking amid resurfacing geopolitical concerns. 

On the other hand, heightened expectations of an extension to the OPEC/non-OPEC output cut fueled a recovery in crude oil prices, which provided an additional boost to the commodity-sensitive loonie. Following a positive close on Monday, the barrel of West Texas Intermediate pushed higher above the critical $50 mark on Tuesday and was last seen trading at $50.30, up 1.45% on the day.

• WTI eases from tops, stays firm above $50.00

In the meantime, today's data from Canada revealed that building permits contracted by 5.5% in August after dropping 3.5% in July, keeping the pair's losses limited for the time being. 

• Canada: Municipalities issued $7.5 bln worth of building permits in Aug, down 5.5% from July

Technical outlook

With today's retreat, the RSI indicator on the daily graph eased lower towards the 50 mark, suggesting that the bulls lost the control of the price action. With a decisive break below 1.2500 (psychological level) the pair could aim for 1.2420 (50-DMA) and 1.2335 (Sep. 27 low). On the upside, resistances align at 1.2550 (Aug. 29 high), 1.2635 (Aug. 30 high) and 1.2665 (Aug. 31 high).

• USD/CAD: CAD rally will stall late in 2018 - Scotiabank