The US dollar suffered another big rejection from its trend defining 200-day moving average against the Canadian dollar last Friday as the rise in oil prices causes the recent rally in the USDCAD pair to unravel.
Crude oil price reclaimed the $72.00 level last Friday, marking an incredible $7.00 rebound from the $65.00 support level. It is hard to deny the strong price correlation that the Canadian dollar currency has with oil prices.
Another piece of the puzzle that needs to unravel in order for the USDCAD pair to continue its well-established bearish trend is US dollar weakness. This week’s FOMC decision promises to be a make-or-break moment for the greenback. Traders should also note that the Canadian economy releases important CPI inflation numbers this week.
Should we see the potent combination of oil strength and US dollar weakness starting to emerge again this week, then the USDCAD pair could easily reverse all of its hard-earned monthly gains down to the 1.2000 mark.
It should be noted that a number of heavy bearish rejections for the pair’s 200-day moving average, which is found close to the 1.2600 level, does not bode well for the USDCAD pair.
High levels of positive sentiment towards the USDCAD pair are also offering a warning of further heavy losses. The ActivTrader market sentiment indicators shows that 71 percent of market participants now bullish.
USDCAD Short-Term Technical Analysis
The four-hour time frame shows that a large head and shoulders pattern appears to be taking shape, however, we do need to see the price falling towards the 1.2200 level to confirm the pattern.
It is noteworthy that significant amounts of bearish MACD price divergence that formed during the recent price rise above the 1.2700 level, around the 1.2480 support area, has now been fully reversed.
USDCAD Medium-Term Technical Analysis
The USDCAD pair has suffered a number of rejections from its 200-day moving average. Multiple days spent below the 200-day MA could provide a sell signal and predict a coming price drop towards the 1.2200 area is possible.
The USDCAD pair has also formed large amount of bearish RSI price divergence, which extends towards the 1.2300 support level.