The US dollar has been turning sharply lower against the Canadian dollar recently after the pair were hit by a double whammy on the fundamental front. Oil prices have been exploding above the $80.00 level, further boosting demand for the Loonie, and Canadian job gains have been surging.
Last Friday, the US and Canadian jobs reports showed a clear divergence, with the Canadian jobs report vastly outperforming to the upside, while the US jobs report was the worst of the year so far.
With Crude oil prices surging higher the Canadian dollar is expected to remain extremely well supported. Should we see US dollar weakness come into the mix, then this trend could explode.
The US dollar index is starting to show signs of upside exhaustion, and more so if the 2020 high holds. If we see a move under the 93.70 support level this could cause the USDCAD pair to crater further to a new multi-month low.
Furthermore, a large bearish price pattern is starting to play out to the downside. If we see this massive head and shoulders pattern ignited we could see the USDCAD testing as low as 1.200 again.
High levels of positive sentiment are still seen towards the USDCAD pair, with some 86 percent of traders holding a bullish view towards the USDCAD pair.
This strong bullish sentiment is a warning of big 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 head and shoulders pattern continues to form, with the latest bounce from the 1.2600 area helping to form a first probably right-handle shoulder.
Significant amounts of bearish MACD price divergence have formed during this recent price rise and extends towards the 1.2280 support area. Watch out for further losses as the divergence continues to unwind if the 1.2580 area cracks, which is also neckline support.
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.
Much will depend on oil prices and the breakout in the US dollar index over the coming days to determine whether the bearish double-top pattern holds or is actually broken.