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The US dollar has once again moved above its trend defining 200-day moving average against the Canadian dollar as a major sell-off in the price of crude oil and other commodities causes the pair to race higher.
Crude oil is often seen as a proxy for the global economy and risk, and with crude oil prices in freefall the Canadian dollar has taken a big hit. The Canadian economy is also closely linked with the price of crude oil.
Moving back to the USDCAD pair’s 200-day moving average, the overall market trend is now bullish over both the short and long-term now. With the pair now turning technically bullish the yearly high is back in focus.
Two possible scenarios exist for the USDCAD pair on the technical front right now. Firstly, the USDCAD pair with slice through the 1.2900 level and rally towards the 1.3000 resistance zone.
Alternatively, the USDCAD pair will fail before the 1.2900 level and sellers will pile in as a notable head and shoulders pattern, with significant downside potential, remains in play.
High levels of negative sentiment still exist towards the USDCAD pair have dropped, with 78 percent of market participants now bearish. This bearish sentiment bias is worrying on many levels.
Now sentiment has started to increase as the USDCAD pair advances, a short squeeze may be in the making. We must also consider the pair’s 200-day moving average has been broken, so the trend is bullish.
USDCAD Short-Term Technical Analysis
The four-hour time frame shows that an inverted head and shoulders pattern appears to have been activated with the target of the pattern likely to take the pair towards the 1.2800 area.
It is noteworthy that significant amounts of bearish MACD price divergence has formed during the latest price rise and extends towards the 1.2280 support area.
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USDCAD Medium-Term Technical Analysis
The USDCAD pair has started to trade above its 200-day moving average. Multiple days spent about the 200-day MA seem to have provided a big buy and could cause a rally towards the 1.3000 area.
The USDCAD pair has also formed a large head and shoulders pattern that will be invalidated if the price moves above the 1.2880 level. If the pattern is invalidated a rally towards the 1.3600 area is possible over the long-term.
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