USD/CAD Price Analysis: Approaches 1.3800 as oil corrects further and US Dollar rebounds

• USD/CAD marches towards 1.3800 as the correction in the US Dollar concludes.
• The oil price extends downside amid a volatile macroeconomic outlook.
• The US Dollar and the Canadian Dollar are likely to dance to the tune of respective official labor market data.

The USD/CAD pair refreshes a six-month high at 1.3785 and is expected to extend its rally towards the round-level resistance of 1.3800 in the European session. The Loonie asset capitalizes on a recovery in the US Dollar and more downside in the oil price. The black gold remains in the bearish territory as investors are worried about the oil demand outlook due to deepening global slowdown fears.

It is worth noting that Canada is the leading exporter of oil to the United States and lower oil prices negatively impact the Canadian Dollar.

The US Dollar Index (DXY) finds buyers’ interest after correcting to near 106.60 despite easing labor market conditions. The US ADP reported fresh private payrolls at 89K in September, almost halved from August reading of 189K. This could impact the strength of the United States' economic outlook ahead.

The US Dollar and the Canadian Dollar are likely to dance to the tune of respective official labor market data, which will be published on Friday.

USD/CAD delivers a breakout of an inverted Head and Shoulder chart pattern formed on the daily scale, which warrants a bullish reversal after a prolonged consolidation. The neckline of the aforementioned chart pattern was plotted from April 28 high at 1.3668. The 50-day Exponential Moving Average (EMA) at 1.3500 continues to provide cushion to the US Dollar bulls. Horizontal resistance is plotted from 12 October 2022 high at 1.3978.

The Relative Strength Index (RSI) (14) shifts into the bullish range of 60.00-80.00, which indicates an activation of the bullish impulse.

A decisive break above March 24 high around 1.3800 would expose the asset to March 10 high at 1.3860, followed by the round-level resistance at 1.3900.

In an alternate scenario, a breakdown below September 25 low around 1.3450 would drag the asset toward September 20 low near 1.3400. A further breakdown could expose the asset to a six-week low near 1.3356.

USD/CAD daily chart