USD/CAD finds support below 1.35 as oil rally pauses

The USD/CAD pair came under a heavy selling pressure in the NA session as the rising oil prices helped the loonie gather strength. After rising to a session high at 1.3516, the pair dropped more than 40 pips but found support near 1.3470. As of writing the pair is trading at 1.3490, still down 0.07% on the day.

After recording heavy losses in the last two days, the barrel of West Texas Intermediate rose to $49.20 in the NA session after the EIA revealed that the U.S. commercial crude oil inventories decreased by 6.4 million barrels for the week ending May 26. However, the bullish momentum faded away after the initial upsurge and now the barrel of WTI is trading at $48.95, still up 1.3% on the day.

• EIA: U.S. commercial crude oil inventories decreased by 6.4 million barrels from the previous week

On the other hand, today's upbeat macro data from the U.S. is helping the greenback preserve its earnings against its competitors, keeping the US Dollar Index above 97. Tomorrow's non-farm payroll report will be the next significant catalyst for the pair. The market consensus is for the NFP to ease to 185K in May from 211K in April. Regardless of tomorrow's data though, a June rate hike seems imminent as the CME Group FedWatch Tool shows the probability of a rate hike at 96% and the market reaction could stay limited.

• US: NFP to remain in focus ahead of Fed - Westpac
• CME Group FedWatch essentially confirms June rate hike

Technical outlook

The RSI on the daily graph remains horizontal near the neutral 50 area, suggesting that despite today's fluctuations the pair is still directionless in short-term. A daily close above 1.3525/30 (50-DMA/Fibo 50% retracement of April-May rise) could allow the pair to gain traction towards 1.3600 (psychological level) and 1.3720 (May 14 high). On the flip side, supports could be seen at 1.3435 (May 31 low), 1.3355 (200-DMA) and 1.3300 (psychological level).