USD/CAD spikes following FOMC, 1.27 handle within reach

• USD jumping on positive FOMC, bond yields.
• Faltering oil prices contributing to CAD weakness.

USD/CAD had a volatile Wednesday, closing on the high side and trading just beneath 1.2700 heading into the overnight session.

The Dollar gained across the board following the FOMC Minutes, where officials voiced concerns about market imbalances and risks within the US economy, but overall growth expectations were raised and interest rate increases should begin soon. Bond yields spiked and equities tumbled following the FOMC, driving the USD higher against the major bloc currencies.

The recent Dollar revival amidst rising bond yields has upended the bearish trend in USD/CAD, with February's rally pricing in a higher low for the pair, and continued positive growth coupled with inflation fears in the US economic outlook could send the pair trading higher, using the recent turnaround from 1.2460 as a foothold.

USD/CAD Technicals

With the Greenback rallying and the Loonie struggling under the weight of its correlation with falling oil prices, the pair is set to challenge the 200-day SMA, currently sitting at 1.2715. The rejection from support off the 34 EMA near the 1.2500 handle will give buyers confidence, and the nearest resistance will likely be the top of 2017's 3rd quarter consolidation range at 1.2910. A bearish continuation will face support from 1.2450, 1.2353, and the recent higher low of 1.2245.