USD/CAD Price Analysis: Descending channel resistance capped the upside ahead of BoC

• USD/CAD struggled to capitalize on the overnight strong gains and edged lower on Wednesday.
• A combination of factors should help limit the downside ahead of the latest BoC policy decision.
• A sustained break through a multi-month descending channel needed to confirm a bullish bias.

The USD/CAD pair edged lower through the first half of the European session and has now eroded a part of the previous day's strong positive move. The pair was last seen hovering near daily lows, just below the 1.2600 mark, down around 0.15% for the day.

The downtick lacked any obvious fundamental catalyst and could be attributed to some repositioning trade ahead of the Bank of Canada policy decision later this Wednesday. Moreover, a combination of factors should help limit any meaningful downside, at least for now.

The US dollar built on the previous day's bounce from multi-week lows and got an additional lift from a pickup in the US Treasury bond yields. Apart from this, weaker crude oil prices might undermine the commodity-linked loonie and extend some support to the USD/CAD pair.

Looking at the technical picture, the overnight strong rally of nearly 150 pips from the 1.2480-70 region stalled near a resistance marked by the top boundary of a four-month-old descending channel. This should now act as a key pivotal point for short-term traders.

Meanwhile, bullish technical indicators on hourly/daily charts support prospects for an eventual break through the mentioned trend channel. However, it will be prudent to wait for a sustained move beyond the 1.2625-30 supply zone before positioning for additional gains.

Above the mentioned barrier, the USD/CAD pair is likely to surpass an intermediate resistance near the 1.2670-75 region and aim to reclaim the 1.2700 round-figure mark. The momentum could further get extended towards the next major hurdle near the 1.2740 supply zone.

On the flip side, immediate support is pegged near the 1.2565 region. Sustained weakness below might turn the USD/CAD pair vulnerable to accelerate the fall back towards the key 1.2500 mark. This is closely followed by the 1.2480-70 strong horizontal support.

Some follow-through selling will negate any near-term positive bias and prompt some technical selling. This, in turn, could drag the USD/USD pair back towards the 1.2400 mark and allow bearish traders to challenge YTD lows support near the 1.2365 region.

USD/CAD daily chart

Technical levels to watch