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The US dollar has been falling against the Canadian dollar, due to a strong recovery in oil prices above the $70.00 level as fears over the Omicron outbreak lesson and oil supplies data show dwindling reserves.
Last week the USDCAD pair briefly fell under the 1.2800 level, however, selling interest has been muted, and a number of key technical are still pointing higher as we will discuss in more detail later.
For now, traders are focused on the Omicron outbreak in China. This is unlikely to be bullish for oil prices, hence, we could see a move lower in the Canadian dollar if oil prices take a hit.
History has taught us that oil prices tend to drop significantly when China is facing economy problems due to its veracious appetite for oil amidst its multi-decade economic expansion, and breakneck speed domestic housing building.
Data is fairly limited this week coming from the United States, thus is fairly illiquid markets were going to see traders focusing on prevailing market narratives, such as Omicron and inflation.
Relatively high levels of bullish sentiment are currently being seen towards the USDCAD pair, with some 67 percent of traders holding a negative view towards the USDCAD pair.
This bullish sentiment bias is the polar opposite of last week, whereby 60 percent of traders were bearish towards the USDCAD pair. The sentiment change underscores the range bound conditions for the USDCAD right now, between the 1.2790 to 1.2920 range.
USDCAD Short-Term Technical Analysis
The Ichimoku indicator on the four-hour time frame shows that the USDCAD pair has fallen back towards the bottom of the cloud, however, the cloud is currently holding firm for now.
The chances of a strong rebound are increased, as the Lagging Line (Dark Green) trades above the cloud. This means that the primary four-hour time frame is still in play despite the drop.
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USDCAD Medium-Term Technical Analysis
The USDCAD pair looks very bullish on the daily time frame, with the price trading above the Ichimoku cloud, and the Lagging Line generating a strong medium-term buy signal.
A large, inverted head and shoulders pattern has also formed, which continues to foreshadow more gains in the USDCAD pair. This could also hint that oil prices are heading lower.
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