USD/CAD erases gains after being rejected from above 1.2500

• US dollar weakens across the board during the American session amid risk appetite.
• USD/CAD reverses and drops more than 540 pips from the daily highs.

The USD/CAD pulled back during the American session after the US dollar lost strength across the board. The pair dropped to 1.2450/55, slightly above the Asian session low. Just a few hours ago, it tested levels above 1.2500.

The rejection from 1.2500 took place as the DXY turned negative and despite higher US bond yields. The improvement in risk sentiment weighed on the dollar. The Dow Jones is up by 0.28%, and the Nasdaq gains 0.10%. Crude is still down, with the WTI losing 0.80%; however, it is off lows and testing $74.00.

The key event for USD/CAD will be on Wednesday with the Bank of Canada’s meeting. “We expect another round of tapering this week, but given the mixed June jobs report that followed two straight months of job losses, it's going to be close call”, said analysts at Brown Brothers Harriman.

Short-term outlook

The USD/CAD is moving in the short –term with a bearish tone, but to keep the doors open got more losses, it needs to drop back under 1.2435. A firm slide below that area would clear the way for a test of 1.2400; below the next support stands at 1.2365.

On the upside, recently US/CAD was rejected from above 1.2500. If it climbs back above and manages to remains above, the greenback could rise toward the next resistances that stand at 1.2545, the last strong protection to the July top at 1.2590.

Technical levels