USD/CAD Price Analysis: More downside looks likely below 1.3420

• USD/CAD drops to near 1.3440 on upbeat market mood.
• Lower oil prices weigh on the Canadian Dollar.
• USD/CAD hovers near the lower leg of the Rising Channel pattern.

The USD/CAD pair turns sideways near 1.3440 after a sharp downside from the psychological resistance of 1.3500 in the early European session. The Loonie asset faces pressure as the appeal for safe-haven assets has dented despite fresh hopes that the Federal Reserve (Fed) will not reduce interest rates until May.

S&P500 futures have added decent gains in the Asian session, portraying an improvement in the risk-appetite of the market participants. The US Dollar Index (DXY) struggles for a firm-footing after declining to near 103.10. 10-year US Treasury yields have dropped to near 4.12%.

The oil prices have dropped slightly below $73.00 due to economic headwinds. Global demand for the oil price is expected to remain lower as central banks are hoping to extend restrictive interest rates a little ahead amid stick price pressures. Also, vulnerable post-pandemic recovery in China keeping weighing on the oil demand.

It is worth noting that Canada is the leading exporter of oil to the United States and higher oil prices support the Canadian Dollar.

USD/CAD has dropped to near the lower portion of the Rising Channel chart pattern formed on a two-hour scale. The Loonie asset could face a sell-off if the asset drops below the immediate support of 1.3410. The asset remains below the 50-period Exponential Moving Average (EMA), which hovers around 1.3464.

The 14-period Relative Strength Index (RSI) has slipped into the bearish range of 20.00-40.000, which indicates that a downside momentum has been triggered.

Fresh downside would appear if the asset will drop below January 9 high of 1.3415, which would expose the asset to January 3 high at 1.3372 and January 4 low at 1.3317.

On the contrary, a significant recovery above January 18 low at 1.3480 would open doors for further upside towards January 18 high at 1.3528, followed by 12 December 2023 low at 1.3545.

USD/CAD two-hour chart