USD/CAD Outlook: 1.2700 mark holds the key for bulls, focus shifts to NFP

• USD/CAD bounced swiftly from one-week lows on Thursday amid resurgent USD demand.
• Bullish oil prices underpinned the loonie and kept a lid on any further gains for the major.
• Investors now look forward to the US monthly jobs report for a fresh directional impetus.

The USD/CAD pair had some good two-way price swings on Thursday and influenced by a combination of diverging forces. Crude oil prices surged around 5% after OPEC and its allies agreed not to increase supply in April. Adding to this, Saudi Arabia decided to maintain its voluntary cut of 1 million barrels per day through April. This was seen as a key factor that underpinned the commodity-linked loonie and dragged the pair to one-week lows, around the 1.2575 region.

The early slide, however, turned out to be short-lived and the pair witnessed a dramatic turnaround amid resurgent US dollar demand. The Fed Chair Jerome Powell – speaking at an online event hosted by the Wall Street Journal – did not indicate any immediate action to curb the recent sharp rise in long-term yields. The lack of concrete hint disappointed some investors and trigger a violent sell-off in the US bond markets, which provided a strong boost to the greenback.

The pair rallied around 120 pips from daily swing lows, albeit struggled to capitalize on the momentum and once again faltered near the 1.2700 mark. Oil prices added to the overnight gains and held steady near 14-month tops through the Asian session on Friday. This, in turn, was seen as a key factor exerting some pressure on the major. On the other hand, the USD was seen consolidating its gains near three-month tops ahead of the closely watched US monthly jobs report.

The headlines NFP is expected to show that the US economy added 182K new jobs in February, up sharply from 49K in the previous month. Meanwhile, the unemployment rate is expected to hold steady at 6.3% during the reported month. A stronger than expected reading will add to the narrative of strong sequential economic recovery and continue pushing the US bond yields. This should benefit the buck and set the stage for an extension of the pair's recent bounce from multi-year tops.

Short-term technical outlook

From a technical perspective, resilience below the 1.2600 mark and the emergence of some dip-buying favours bullish traders. That said, repeated failures near the 1.2700 mark warrants some caution before positioning for any meaningful positive move. Hence, traders are likely to wait for a convincing break through the 100 pips trading range to confirm the pair’s near-term trajectory. Given that technical indicators on the daily chart have just started moving into the positive territory, a sustained strength beyond the 1.2700 mark will be seen as a fresh trigger for bullish traders. The mentioned level coincides with an over one-month-old descending trend-line, above which the pair seems all set to aim back towards reclaiming the 1.2800 round-figure.

On the flip side, a short-term ascending trend-line, currently around the 1.2600 mark should protect the immediate downside. Some follow-through weakness, leading to a subsequent break below the overnight swing lows, around the 1.2575 region will negate any near-term bullish bias. The pair might then accelerate the slide further towards challenging the key 1.2500 psychological mark before eventually dropping to multi-year lows, around the 1.2470-65 region.