USD/CAD slips below 1.2870 as the DXY struggles above 104.000 and oil prices reach $110,000

After falling below the critical support level of 1.2870, the USD/CAD pair has declined to about 1.2860. As oil prices have extended their recovery and are currently trading over the psychological resistance of $110.00, it is expected that the asset will continue its losses and finish below 1.2860.

Notable is the fact that Canada is the United States' largest oil exporter. Therefore, higher oil prices lead to greater cash flows into Canada. Instead of focusing on advanced recession concerns, investors have decided to support current supply constraints, resulting in a strong oil price recovery.

After Western leaders banned Russian oil imports, the OPEC cartel is attempting to settle supply issues. Saudi Arabia and the United Arab Emirates (UAE) are the only OPEC members able to considerably expand the global oil supply. Both countries are seeing high prices and ample supply.

In the meanwhile, the US dollar index (DXY) fails to firmly above the 104.00 round-level barrier. As rapidly as the Federal Reserve (Fed) raises interest rates, concerns of a recession intensify. In its monetary policy statement for July, the Fed will certainly hike interest rates to at least 2 percent. A two percent interest rate is sufficient to restrict market liquidity in the United States. This will force the corporate sector to prioritize very selected investment projects, resulting in an extended drop in labor demand.