USD/CAD Analysis: Double-top, ascending channel breakdown in play ahead of Canadian jobs data

• USD/CAD witnessed selling for the third successive day and dropped to over a one-week low.
• An uptick in oil prices underpins the loonie and exerts pressure amid a further USD pullback.
• Investors now look forward to the monthly Canadian jobs report for some meaningful impetus.

The USD/CAD pair remains under intense selling pressure for the third successive day on Friday and dives to a one-and-half-week low during the Asian session. Crude oil prices build on the previous day's modest bounce from a multi-month low and underpin the commodity-linked loonie. Against the backdrop of a symbolic output cut by OPEC+, Russia's threat to cut oil flows to any country that backs a price cap on its crude raises concerns about tight global supply and offers support to the black liquid. This, along with the resumption of the US dollar pullback from a two-decade high touched earlier this week, exerts heavy downward pressure on the major.

A goodish recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - turns out to be a key factor weighing on the safe-haven greenback. Apart from this, the USD downtick lacks any obvious catalyst and is more likely to remain limited amid expectations for a more aggressive policy tightening by the Fed. In fact, the implied odds for a 75 bps Fed rate hike move in September now stands at 85%, which remains supportive of elevated US Treasury bond yields. The bets were reaffirmed by the overnight hawkish remarks by Fed Chair Jerome Powell, reiterating the central bank's strong commitment to bringing inflation down.

Speaking at a Cato Institute conference, Powell said that the Fed needs to keep going until it gets the job done and warned against prematurely loosening monetary policy. Furthermore, concerns that a deeper global economic downturn, along with fresh COVID-19 curbs in China, could curb fuel demand should cap oil prices and offer some support to the USD/CAD pair. Traders now look forward to the release of the monthly Canadian employment figures for a fresh impetus. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the pair is to the upside and the ongoing downfall could still be seen as a buying opportunity.

Technical Outlook

From a technical perspective, repeated failures to find acceptance above the 1.3200 mark constituted the formation of a bearish double-top on short-term charts. A subsequent break through the lower end of an ascending channel extending from the August monthly swing low could be seen as a fresh trigger for bearish traders. The intraday decline, however, stalls near the 38.2% Fibonacci retracement level of the August-September rally. The said support, around the 1.3025-1.3020 region, should now act as a pivotal point. Some follow-through selling below the 1.3000 psychological mark will add credence to the bearish breakdown and make the USD/CAD pair vulnerable to testing the 50% Fibo. level, around the 1.2970-1.2960 region.

On the flip side, the ascending trend-channel support breakpoint, near the 1.3070-1.3075 region, now seems to act as an immediate hurdle ahead of the 1.3100 mark, or the 23.6% Fibo. level. Sustained strength beyond has the potential to lift the USD/CAD pair back towards the 1.3150-1.3155 resistance zone. Some follow-through buying could allow bulls to make a fresh attempt to clear the 1.3200-1.3210 barrier, which, if conquered, should pave the way for an extension of the recent strong positive move witnessed over the past month or so.