USD/CAD extends correction, trades below 1.2850

• USD/CAD reversed its direction and started to decline during American session.
• WTI is down more than 2% on the day, limiting USD/CAD's downside.
• US Dollar Index looks to snap four-day winning streak.

After rising to its strongest level since December at 1.2949, the USD/CAD pair reversed its direction during the American session on Friday and erased the majority of its daily gains. As of writing, the pair was up 0.1% on the day at 1.2840. Despite this recent pullback, the pair is still up more than 300 pips for the week.

DXY drops below 93.50 as sentiment recover

Since the beginning of the week, the unabated selling pressure surrounding crude oil made it difficult for the loonie to find demand. Although the barrel of West Texas Intermediate (WTI) continues to edge lower on Friday, the downward correction witnessed in the US Dollar Index (DXY) seems to be causing the pair to move away from its highs. Currently, WTI is down 2.1% at $62.50.

With the market mood improving ahead of the weekend, the greenback is struggling to preserve its strength. At the moment, the DXY is posting modest daily losses at 93.44 and the S&P 500 Index is rising 0.4%.

Earlier in the day, the data from Canada revealed that Retail Sales rose by 4.2% on a monthly basis in June. This print missed the market expectation of 4.4% but received little to no reaction from markets.

Commenting on the underlying details of the sales report, "Statistics Canada's flash estimate for July suggested a somewhat disappointing 1.7% retreat in sales," noted analysts at CIBC. "We're hoping that just meant that Canadians were spending more money on hard-hit services that became available again."

Technical levels to watch for