The US dollar is trading at a six-week high against the Canadian dollar as the trading week comes to a close, as the greenback continues to post huge gains against commodity-related currencies.
Technical analysis shows that the USDCAD pair is on course for a fourth-straight of strong gains, and is now testing towards multi-year trendline resistance, around the 1.2375 level.
The 1.2375 level is an area of huge technical importance because it marks the top of a large falling wedge pattern that has been in play since last year. If we see the USDCAD pair breaking above this level then a major shift could take place in how traders think about the USDCAD.
Not even a retreat in US treasury yields and higher US weekly jobless claims has dented the breakout rally in the greenback. It is worth repeating that whatever happens around multi-year trendline resistance, around the 1.2375 level, could determine the next 200 points in the USDCAD pair.
According to the ActivTrades market sentiment tool, 68 percent of traders are bullish towards the USDCAD pair. This is a steep drop, as over 90 percent of traders were bullish towards the USDCAD pair last week.
The pair is still showing a one-way sentiment skew, however, retail traders have been right about the direction of the pair over recent weeks. Based on historical data it could be even more bullish for the USDCAD pair if traders turn increasingly bearish and the USDCAD pair continues to rise.
USDCAD Short-Term Technical Analysis
The four-hour time frame shows that the USDCAD pair has staged a major trendline breakout and could be headed even higher towards former swing-high from April this year.
If bulls are able to overcome the 1.2385 area, I suspect a rally towards the 1.2430 area is likely to take hold. It is also possible that USDCAD bulls could even test as high as the 1.2530 resistance area.
USDCAD Medium-Term Technical Analysis
Looking at the weekly time frame chart, the USDCAD pair has recently staged a massive technical bounce from the bottom of an extremely large falling price channel.
Overall, the downtrend could be broken if USDCAD buyers breach the top of the price channel, around the1.2375 area, which is the top of the falling wedge pattern, an even greater rally towards the pairs 200-day moving average, around 1.2600 area, could take place.