The US dollar has taken another hit against the Canadian dollar at the start of the trading week, as traders start to factor in the bearish news from Saudi Arabia regarding the price cuts from Saudi Aramco.
Last week the USDCAD pair staged a gradual drop towards the 1.2550 level, with the bearish news from Saudi Arabia further speeding up the decline towards the benchmark 1.2500 level.
A number of risk events may keep traders from being too bearish towards the USDCAD pair over the coming days and week, which are the Canadian monthly jobs report and the Canadian election.
The Canadian election is scheduled for September 20th, and Justin Trudeaux is expected to win, so traders and investors may be mildly cautious about becoming overly positioned short USDCAD due to the magnitude of the event.
This week’s job report could be a market mover because the decline in global growth and rising COVID-19 cases may start to slow the Canadian jobs market and push back rate cut expectations for the Bank of Canadian.
Looking at sentiment, these weeks we see very high levels of bullish sentiment towards the USDCAD pair, with some 83 percent of market participants currently positive towards the USDCAD pair.
This could mean that the long squeeze is set to continue, and we could see further downside in the pair, as the reversal from the August high, close to 1.2950, continues to gather pace.
USDCAD Short-Term Technical Analysis
Significant amounts of bearish MACD price divergence have formed during last month’s price rise, and appear to be unwinding, which may mean more heavy losses for the USDCAD this week.
The bearish MACD price divergence and extends towards the 1.2280 support area, which point to around 200 points of downside, further losses this week as the divergence continues to unwind.
USDCAD Medium-Term Technical Analysis
The USDCAD pair has been well and truly rejected from its trend defining 200-day moving average, after saw bulls and bears doing battle around this key technical metric last week.
The USDCAD pair now looks to have also formed a large head and shoulders pattern, which will be confirmed if we see a coming decline back towards the 1.2400 support level. The overall size of the pattern implies a medium-term decline towards the 1.1900 support zone.