The US dollar is trading at its weakest against the Canadian dollar in over a month as the US dollar index fell against a broad basket of major currencies and US equities shook off an early risk-off mood.
A familiar pattern has been happening over recent weeks, whereby we see risk-on moves at the start of the trading week, and then suddenly the market starts to quickly reverse.
Oil prices also climbed and Canadian bond yields have advanced further above their US counterparts, leaving the bias for the sell side. The gap between Canadian and US 10-year yields widened to 20 basis points, which worryingly market the widest spread since August 2012.
Traders looking to take advantage of this will likely look for opportunities to sell rallies in the USDCAD pair in the short-term. Last week’s Bank of Canada rate hike certainly bolstered the Canadian dollar.
In the bigger picture we are seeing range bound trading. The USDCAD pair is caught in a large range between the 1.2400 to 1.3000. We could well see a challenge to the range low, ahead of the Fed, around 1.2400, over the coming days.
High levels of bullish sentiment are still being seen towards the USDCAD pair, with some 79 percent of traders currently holding a positive view towards the USDCAD pair.
This bullish sentiment bias is a big concern, and it could mean that USDCAD traders are in for a tough week again, and the expected move back towards the 1.2400 support level.
USDCAD Short-Term Technical Analysis
The USDCAD pair has activated a notable head and shoulders pattern, with the size of this pattern implying that the USDCAD pair could actually drop by a further 300 points.
Due to the break under the 1.2700 area, as this is the neckline of the bullish pattern, more heavy losses in the USDCAD pair until we see the pattern reach its full potential of 1.2400.
USDCAD Medium-Term Technical Analysis
The USDCAD pair is trading inside a massive price range between the 1.2400 and 1.3000 levels according to the daily time frame chart for nearly over one-year now.
A range break itself is indicating a huge range breakout once we see the 1.2400 to 1.3000 price range broken. I think a 600-point price move seems appropriate in this case.