• USD/CAD recovers from 1.3400 amid cautious market mood ahead of Fed’s policy.
• The Fed is seen keeping interest rates unchanged in the range of 5.25-5.50%.
• Oil prices come under pressure as gloomy demand outlook.

The USD/CAD pair discovers buying interest near the round-level cushion of 1.3400. The Loonie asset rebounds as market mood has turned quite cautious ahead of the interest rate decision by the Federal Reserve (Fed) and the Automatic Data Processing (ADP) Employment Change data for January.

S&P500 futures have faces selling pressure in the European session, indicating a risk-aversion theme. The US Dollar Index (DXY) rises as appeal for safe-haven assets improve ahead of Fed’s policy. The Fed is expected to leave interest rates unchanged in the range of 5.25-5.50%. Investors will keenly focus on fresh cues about quantitative easing.

Market participants anticipate that the Fed will start reducing interest rates from May as price pressures are consistently softening.

On the oil front, oil price falls as investors lean towards poor demand outlook against geopolitical tensions. Investors see poor demand for oil in China due to deepening real estate crisis. It is worth noting that Canada is the leading exporter of oil to the United States and lower oil prices weaken the Canadian Dollar.

USD/CAD recovers from December 18 high of 1.3409. The 50% Fibonacci retracement (plotted from November 1 high at 1.3900 to December 27 low of 1.3177) at 1.3540 is acting as a major barricade for the US Dollar bulls. The near-term demand is not bullish enough as it the Loonie asset is trading below the 50-period Exponential Moving Average (EMA).

The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 range, which indicates a consolidation ahead.

An upside move would appear if the asset will break above the 38.2% Fibo retracement, which will placed at 1.3455. This would allow more upside towards the psychological resistance of 1.3500, followed by 50% Fibo retracement at 1.3540.

On the flip side, a downside move below 23.6% Fibo retracement at 1.3350 would drag the asset towards the round-level support of 1.3300 and December 29 high at 1.3265