USD/CAD Outlook: Bulls have the upper hand ahead of US/Canadian monthly jobs data

• USD/CAD stalls the overnight pullback from a multi-month peak and draws support from a combination of factors.
• Bearish Crude Oil prices undermine the Loonie and act as a tailwind amid the emergence of some USD dip-buying.
• Traders now look to the crucial monthly employment data from the US and Canada for a fresh directional impetus.

The USD/CAD pair attracts some buyers near the 1.3700 mark on Friday and reverses a part of the previous day's retracement slide from its highest level since March 24. The US Dollar (USD) regains positive traction and stalls a two-day corrective decline from the YTD peak. Meanwhile, Crude Oil prices languish near a one-month low, which continues to undermine the commodity-linked Loonie and lends additional support to the major. Spot prices stick to modest intraday gains heading into the European session, though lack follow-through as traders now look to the monthly employment reports from the US and Canada for a fresh directional impetus.

The popularly known NFP report will play a key role in influencing market expectations about the Federal Reserve's (Fed) future rate-hike path. This, in turn, will drive the US Dollar (USD) and determine the next leg of a directional move for the USD/CAD pair. The US economy is expected to have added 170K jobs in September, slightly lower than the 187K reported in the previous month, while the jobless rate is anticipated to tick down to 3.7% from 3.8% in August. A stronger report, meanwhile, would mean more pressure on wages and inflation, which might force the Federal Reserve (Fed) to stick to its hawkish stance and keep rates higher for longer. Hence, the crucial jobs data will play a key role in influencing market expectations about the next policy move by the Fed and drive the USD demand in the near term.

The repricing of the Fed's future rate-hike path, meanwhile, is likely to overshadow the simultaneous release of the Canadian jobs report. Moreover, the immediate market reaction to any positive surprise to the Canadian data should remain limited in the wake of firming expectations that the Bank of Canada (BoC) is finished hiking interest rates. Furthermore, the recent sharp fall in Crude Oil prices, triggered by concerns that a global economic slowdown will dent fuel demand, might keep a lid on any meaningful upside for the Canadian Dollar (CAD). This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the downside. Nevertheless, spot prices remain on track to register strong gains for the second week in a row and seem poised to build on the move-up witnessed over the past week or so.

Technical Outlook

From a technical perspective, the recent breakout through the 1.3650 strong horizontal barrier and the emergence of fresh buying on Friday favours bullish traders. Moreover, oscillators on the daily chart have been gaining positive traction and are still far from being in the overbought territory. This reaffirms the near-term positive outlook for the USD/CAD pair and supports prospects for a move towards retesting the overnight swing high, around the 1.3785 region. This is closely followed by the 1.3800 round-figure mark, above which the upward trajectory could eventually lift spot prices to the YTD peak, around the 1.3860 area touched on March 10.

On the flip side, weakness below the 1.3700 mark might now be seen as a buying opportunity near the 1.3650 resistance-turned-support. This should help limit the downside around the 1.3610-1.3600 support. The latter should act as a key pivotal point for short-term traders, which if broken decisively might prompt some technical selling and pave the way for deeper losses. The corrective decline might then drag the USD/CAD pair further below mid-1.3500s intermediate support, towards testing the 1.3500 psychological mark en route to the 1.3450-1.3440 area.