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The US dollar has remained largely under pressure against the Canadian, after the pair as oil prices have been rally above the $80.00 level and the US dollar index remains in bearish correction mode.
USDCAD traders do need to be careful because the downside is still being limited, despite oil price surging to new highs, the USDCAD pair is no longer making new lows on the foreign exchange market.
Canada’s rising inflation and recovering job market are raising pressure on the Bank of Canada to hike interest rates this week, with investors looking for confirmation the central bank is turning more hawkish today.
The last Canadian jobs reports showed a clear divergence, with the US jobs report vastly outperforming to the upside and making it more difficult for the Bank of Canada to remain on the fence.
Common sense would dictate the USDCAD pair will continue to fall further, however, bullish MACD price divergence is warning that a potential final rally towards the 1.2500 level could still happen.
Additionally, we should also consider that some traders and investors may be reluctant to take on a position until after the November FOMC meeting is over, giving the expectations towards QE tapering being announced.
High levels of positive sentiment are still seen towards the USDCAD pair, with some 90 percent of traders holding a bullish view towards the USDCAD pair.
This strong bullish sentiment is a warning of more potential losses ahead if we take this as big contrarian signal, as retail traders are usually on the wrong side of the trend of late to the party.
USDCAD Short-Term Technical Analysis
The four-hour time frame shows that a large, inverted head and shoulders pattern continues to form, with the latest bounce from the 1.2400 area helping to form the bullish reversal pattern..
Significant amounts of bearish MACD price divergence have formed during this recent price decline and extends towards the 1.2500 level. Watch out for further gains as the divergence continues to unwind if the 1.2400 area cracks, which is also neckline of the mentioned bullish pattern.
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USDCAD Medium-Term Technical Analysis
A bearish double-top has recently formed with the recent series of upside failure above the 1.2900 resistance level. Double tops are amongst the most bearish price patterns and are dampening the medium-term outlook.
Much will depend monetary policy, but it does look like the 1.2000 level will be tested sooner rather than later. Rallies towards the 1.2500 to 1.2600 resistance zones are probably best to sell.
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