The US dollar has been on a one-way price journey against the Canadian dollar currency since last week’s Bank of Canada meeting as the market adjusts to the fact that the Canadian central bank could be about to raise interest rates next month.
Other factors are also driving the Canadian dollar lower this week, such as a rise in commodity prices and further bearishness towards the US dollar currency ahead of today’s FOMC rate decision.
A solid recovery in oil prices in particular this week has helped to push the USDCAD pair under the 1.2400 handle, and ever closer to its current 2020 trading low, which is the only notably support before 1.2300, around the 1.2365 support level.
Many other commodity-related currencies are also rising this week, as optimism grows that a so-called super-cycle in commodity prices is around the corner. Bullishness over the American economy is helping to drive sentiment after a recent spate of positive data points.
The technical front has also been weakening for the USDCAD pair. A bearish breakout from a broadening wedge pattern earlier this week is certainly signalling more short-term technical weakness ahead.
Additionally, extreme bullish sentiment towards the USDCAD pair is starting to rise this week, which is adding fuel to the fire, as retail traders get caught on the wrong side of the market once again.
According to the ActivTrades market sentiment some 91 percent of traders are bullish towards the USDCAD pair. This is a 5 percent increase since last week, as retail traders remain on the wrong side of the technical and fundamentals.
This is extreme one-way sentiment skew is warning of further heavy downside ahead for the USDCAD pair.
USDCAD Short-Term Technical Analysis
The four-hour time frame shows that a breakout from a broadening wedge pattern has taken place, following the recent move under the 1.2470 support level.
Broadening wedge pattern typically signify powerful technical breakouts, and often long-lasting ounces. We could be about to see a very strong bearish move lower.
Watch out for a strong directional move of over 200 points, which would likely take the USDCAD pair below the 1.2300 level, and potentially much lower.
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USDCAD Medium-Term Technical Analysis
Looking at the daily time chart, the USDCAD technical surrounding the pair do look particularly grim. The USDCAD is trapped inside a large falling price channel between the 1.2640 and 1.2200 level.
Bears are more than likely going to test towards the bottom of the channel. Therefore, we should expect a coming move towards the 1.2200 price area before any type of bounce takes place.
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