The US dollar took another beating against the Canadian dollar currency yesterday after the Federal Reserve economic projection revealed that the US central bank will not be raising US interest rates until 2024.
Moments after the FOMC policy statement and FED Dot Plots were released the greenback crumbled against all the major currencies, which in turn sent the heavily under fire USDCAD pair to a fresh two-year trading low.
In the hours leading up to the Federal Open Market Committee policy meeting the USDCAD pair staged a relief rally back towards the 1.2500 handle, following weaker-than-expected Consumer Price inflation data from the Canadian economy.
Traders quickly shrugged-off the soft number and placed their focus back on selling rallies in the USDCAD pair, which has been a highly lucrative trade for short-term USDCAD bears since November last year.
In terms of where the USDCAD pair heads now, the short and medium-term prospects look pretty bleak. The technicals on both the lower and higher time frames are pointing to a pending run towards the 1.2200 support region before the pair has any type of meaningful price retracement.
What is particularly noteworthy is the retail sentiment towards the USDCAD pair has been heavily bullish over recent months. The ActivTrader platform market sentiment tool has been flagging that traders have running against the prevailing trend for some considerable time now.
A staggering 87 percent of traders are currently bullish towards the USDCAD pair, meaning that the crowd is leaning heavily against the bearish trend, and these traders feeling a large degree of pain as the pair slump to fresh multi-year lows. In short, expect the pain trade to continue while this sentiment extreme remains in play.
USDCAD Short-Term Technical Analysis
The four-hour time frame shows that a large, inverted head and shoulders pattern has been invalidated, placing the USDCAD pair in a very tough spot technically until the pattern reaches the invalidation target.
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According to the size of the pattern the USDCAD pair could fall towards the 1.2200 level. With the USDCAD setting fresh multi-year lows the pair is now basically clear of meaningful long-term support until the 1.2280 region.
USDCAD Medium-Term Technical Analysis
Looking at the daily time chart, the USDCAD pair appears to be making its way towards the bottom of a massive falling wedge pattern. Falling wedge patterns are known to be amongst the most powerful bullish reversal pattern.
Bulls currently have few options but to wait until the pair reaches the bottom of the wedge pattern, which is located close to 1.2200 level. Traders are likely to sell any meaningful rallies back towards the 1.2450 to 1.2480 region in expectation of more weakness in the USDCAD pair.
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