The US dollar has bounced from a three-year low against the Canadian dollar after finding strong technical support from extended trendline support, around the 1.2012 level just over one week ago.
Market sentiment towards the greenback picked-up this week as a number of Federal Reserve members such as Charles Quarles and Richard Clarida noted that the US central bank could start to discuss tapering QE as soon as next month. Fear over rampant inflation were somewhat put aside as yesterday’s quarterly Core PCE number from the United States came in better than expected, but ultimately, not as strong as feared.
The USDCAD pair has backed away sharply from the high of the week, around the 1.2145 area. Solid gains in oil prices this week helped boost the Loonie and was largely attributed to strength in the Canadian dollar alongside the drop in sentiment towards the greenback.
Next week should be a crucial for the USDCAD pair. Monthly jobs and GDP data from the Canadian dollar will be absolutely key, at a time when the market is speculating that the Bank of Canada are close to raising rates. The Non-farm payrolls will also be a big driver for this pair.
Very high levels of positive sentiment towards the USDCAD pair amongst the retail crowd continues to issue a warning sign. According to the ActivTrades market sentiment tool, 90 percent of traders are bullish towards the USDCAD pair.
The extreme one-way sentiment skew does not bode well for the bull case surrounding the USDCAD pair right now. Retail traders are often on the wrong side of the market, and this sentiment extreme could mean the protracted bearish trend in the USDCAD is set to continue.
USDCAD Short-Term Technical Analysis
The four-hour time frame shows that a bullish triple-bottom pattern formation has played out to the upside and is offering a warning on the chart of further gains. It remains up for debate whether the upside in the USDCAD pair is done to the upside for now.
It is also noteworthy that a double-top pattern formation is in play after bulls failed to break the 1.2150 level this week. Due to the overwhelmingly bullish sentiment, I feel that bears could breach the 1.2000 support level soon and take the USDCAD pair even lower.
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USDCAD Medium-Term Technical Analysis
Looking at the weekly time frame chart, the USDCAD pair has extended weekly support around the 1.1900 level from the bottom of an extremely large falling price channel.
Overall, the downtrend remains strong in the USDCAD pair, however, once the USDCAD pair reaches the 1.1900 price area a technical bounce towards the 1.2250 area could occur.
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