The US dollar is once again attempting to break higher against the Canadian dollar, after the pair dropped to its weakest trading level in over three-year last week, and then rebounded by around 250 points.
A combination of US dollar strength and a downside correction in oil prices is currently creating bullish tailwinds for the USDCAD. Going forward, sustained strength above the 1.2700 resistance level could provoke the next leg higher in the commodity-related pair.
Hopes are high that the latest move higher could be the start of something meaningful, as the USDCAD pair has lost over 2,000 points since February 2020. Continued gains above the 1.2700 level could provoke a test of the 1.3000 level, and possibly much higher.
Any rallies in the USDCAD pair have been sold sharply over recent months as oil prices have continued to rise and the US dollar index has broken down, despite promising to rebound many times.
Without a doubt, US dollar index bulls need to gain traction above the 91.50 level this week in order for last week’s momentum to follow through. Additionally, this week’s OPEC meeting will be a big deal for the USDCAD pair.
Speaking of the correlation with the Canadian dollar and oil prices, the Canadian economies reliance on oil during the ongoing rise in oil price has caused the recent outperformance in the Canadian dollar on the currency market. Oil prices do need to come down from current levels to support ongoing USDCAD strength.
A potential medium-term trend shift is underway in the greenback, following much-better US data points over recent weeks and rising bond yields. If this dynamic remains in play then further upside in the USDCAD pair is expected.
According to the Activtrader platform market sentiment indicator traders are overly bullish towards the recent rally. Traders have been on right side of the trade thus far. It will be interesting to see how sentiment holds up if the up move continues to gather pace.
USDCAD Short-Term Technical Analysis
The four-hour time frame shows that a bullish inverted head and shoulders pattern will be activated if USDCAD bulls can force a breakout above the 1.2740 resistance level.
Source By ActivTrader.
According to the size of the pattern, the USDCAD pair could rally by around 250 points if a bullish breakout occurs, taking the USDCAD towards the 1.3000 resistance area.
Any pullbacks towards the 1.2600 support zone may be seen as major buying opportunity, in expectation of a major rally.
USDCAD Medium-Term Technical Analysis
Looking at the daily time chart, a breakout from a large falling wedge pattern will take place if bulls can anchor the USDCAD pair above the 1.2700 resistance level. The wedge has been in place since November last week.
Falling wedge patterns are typically considered to be amongst the most powerful bullish reversal patterns. In terms of upside targets, the 1.3000, 1.3400, and 1.3800 levels are the main bullish targets if the breakout comes to pass over the coming days and weeks.
Source By ActivTrader.