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The US dollar has started to rise against the Canadian dollar, as the Canadian dollar comes out of favour with FX traders and the price of oil starts to struggle above the $80.00 level.
Last week the USDCAD pair staged a strong bounce after the FOMC policy meeting, as the greenback strengthened on the tapering news. Strangely, the USDCAD pair has not reacted to the US infrastructure bill as many expected.
Much of the weakness in the Canadian dollar has to do with the soft jobs report from the Canadian economy last week, and the divergence between the stronger than expected US jobs report.
The jobs report showed that the Canadian economy added 31,000 jobs last month, well down from September’s positive jobs report and also well below what economists were expecting but enough to push the jobless rate down by two ticks to 6.7 per cent.
Frankly speaking, the takeaway from the report is that Canada’s economy has more jobs than it did before the pandemic started in 2020, however, the numbers show that the employment recovery is uneven and running out of steam.
Logic would dictate that the USDCAD pair will continue to rise on the positive momentum, and speaking of momentum, bullish divergence on the Momentum indicator is warning that a potential final rally towards the 1.2600 level could still happen.
High levels of positive sentiment are still seen towards the USDCAD pair, with some 82 percent of traders holding a bullish view towards the USDCAD pair.
This strong bullish sentiment is a warning of more potential losses ahead, however, if we consider that the trend in the short-term is bullish above the 1.2400 level then this is a compelling long trade to watch.
USDCAD Short-Term Technical Analysis
The four-hour time frame shows that a large, inverted head and shoulders pattern has largely played out to the upside, with the latest bounce advancing close to the 1.2500 area.
Significant amounts of bullish MACD price divergence have formed during this recent price decline and extends towards the 1.2600 level. Watch out for further gains as the divergence continues to unwind if the 1.2500 area is breached.
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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. However, a correction to the upside looks plausible before the next big down leg commences.
Much will depend on the US dollar and oil prices, but I still favour a coming test of the 1.2500 to 1.2600 resistance zones, with the 1.2600 level probably the best area to attempt to sell the USDCAD pair.
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