The US dollar is trading around the middle of its recent near-term range against the Canadian dollar, ahead of the Bank of Canada interest rate decision and policy statement this week.
Most pundits are predicting a 75-basis point hike from the Canadian central bank. In such a scenario it is likely that the Canadian dollar currency could have some type of upside boost.
In this comes to pass all eyes will be on the 1.4000 level, which is the key technical area that the USDCAD pair reversed sharply from earlier this month as it hit its highest trading level since mid-2020.
Should we see weak upside momentum then the notion that a major price top has already formed will start to solidify, and we could see traders selling into price strength.
With the above in mind, we should mindful that an important price top could have also formed in the US dollar index. The GBP and EUR currencies are struggling to make new lows and recovering against the buck.
High levels of negative sentiment are still being seen towards the USDCAD pair, with some 69 percent of traders currently holding a negative view towards the USDCAD pair.
This large bearish sentiment bias probably hints that a minor upside price correction could happen as retail are typically on the wrong side of the trade.
USDCAD Short-Term Technical Analysis
The USDCAD pair has formed a large head and shoulders pattern, and the neckline of the head and shoulders pattern is found around 1.3500 support level.
According to technical analysis we could be close to putting in a price top soon. And a final thrust higher looks to have been the test of 1.4000, and the reversal could soon continue.
USDCAD Medium-Term Technical Analysis
The USDCAD pair is likely to have put in a large one-day reversal candle. The doji shaped price candle and near 300-point one day reversal are all bearish price signs for the USDCAD pair.
A large head and shoulders pattern could also be forming, traders also need to be on guard for a double-top price pattern which could soon terminate around the 1.3800 to 1.3900 area.