USD/CAD traces steady Oil price to seesaw around 1.3500 ahead of Fed Minutes

• USD/CAD remains illiquid for the fourth consecutive day, retreating from intraday high of late.
• Oil price prods two-day uptrend at the highest levels in three weeks, struggles recently amid cautious markets.
• US Dollar tracks yields to pare recent gains amid deadlock in debt ceiling talks.
• FOMC Meeting Minutes, US default and weekly Oil inventories updates will be the key for clear directions.

USD/CAD keeps making rounds to 1.3500 ahead of Wednesday’s European session, after three consecutively volatile days that ended without any daily gains/losses. In doing so, the Loonie pair tracks moves of the prices of Canada’s main export item, WTI crude oil, while ignoring the latest retreat in the US Dollar.

Markets turn inactive during early Wednesday as an impasse in the US debt ceiling talks joins the cautious mood ahead of the Fed Minutes. Also, mixed concerns about the risk and an absence of major incentives restrict the Oil price moves and limit the USD/CAD performance of late.

That said, the US Dollar Index (DXY) snaps a two-day winning streak as it prints mild losses around 103.45 by the press time while WTI crude oil clings to minor gains at the highest levels in three weeks, up 0.08% intraday near $73.85 by the press time.

It’s worth noting that the lack of progress in the talks to avoid the US debt ceiling expiration and fears that the US may mark the ‘catastrophic’ default weighed on the market sentiment of late. Recently, US House Speaker Kevin McCarthy crossed wires, via Reuters, while suggesting no deal on the debt ceiling extension today but repeating previous optimism that they will get an agreement before June 01. Previously, Washington rolled out news stating the US Treasury has asked multiple agencies if they can delay the payment demands.

Even so, firmer prints of the US data and hawkish Fed concerns challenge the Loonie pair sellers. On Tuesday, preliminary figures of the May monthly PMIs signaled that the US Services sector keeps outgrowing the manufacturing ones and fuelled the Composite PMI figure to the highest levels in a year.  Further, the latest comments from Atlanta Fed President Raphael Bostic, Richmond Fed President Thomas Barkin and San Francisco President Mary C Daly backed the calls for higher Fed rates while citing the inflation woes, which in turn propelled the bets on the Fed rate increase in June.

Elsewhere, the US Dollar’s retreat and a surprise depletion in the Oil inventories per the American Petroleum Institute (API) allowed the WTI crude oil to refresh a multi-day high the previous day. However, challenges to sentiment recently limited the black gold’s moves.

While portraying the risk profile, S&P500 Futures ignore Wall Street’s downbeat performance to print mild gains whereas the US 10-year and two-year Treasury bond yields retreated from the highest levels since early March the previous day.

Moving on, major attention will be given to the US debt ceiling talks and Minutes of the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting for clear directions. If the US policymakers manage to overcome the default fears, as well as the Fed Minutes appear hawkish, the US Dollar may regain its charm and can recall the USD/CAD bulls.

Technical analysis

Tuesday’s Gravestone Doji needs validation from the 12-day-old ascending support line, around 1.3490 by the press time, to convince USD/CAD bears.