Like many of the major currency pairs at present, it’s US dollar strength which has been the primary driver over the last few weeks, and for the USDCAD, which moved firmly lower once again, the decline in the price of oil has also added further momentum to the move. However, before considering the USDCAD in detail, it’s worth taking a quick look at the weekly chart for the US dollar index, with last week’s price action really telling it’s own story, as the index closed on a shooting star candle, following four consecutive weeks of gains for the currency of first reserve.

This suggests a pause point or possible reversal, and is also given further significance with the increasingly narrow price spreads over this period, with the index climbing, but with an increasing lack of conviction.

Moving to the Canadian dollar and US dollar, the key price action from last week was the breach of the potential support level in the 0.9150 area, with Friday’s price action taking the pair firmly away from this level, and also moving through the next immediately below in the 0.9110 region. In addition Friday’s close also delivered a pivot high, adding yet another signal of bearish intent to the market with Friday’s rising volume also confirming the continuing bearish picture.

The next region of potential support now awaits in the 0.9040 area which may ultimately provide the springboard for a consolidation phase and recovery in due course. To the left the currency strength indicator is also confirming this picture, with the US dollar now deep in oversold territory and the Canadian dollar approaching this region. In the short term, the pair are likely to move lower, but the signals suggest a reversal is now on the way, which will no doubt be confirmed with volume price analysis in due course.

Editor’s Note: Equity investors/traders can use the CurrencyShares Canadian Dollar Trust (FXC, quote) ETF to take positions in the euro without a FOREX account.  The ETF looks to track the price of the euro (USDCAD), minus ETF fee. The fund seeks to reflect the price of the Canadian Dollar with the shares representing a cost-effective investment relative to investing in the FOREX market.

Anna Coulling is a trader with over 16 years’ experience and founder of AnnaCoulling.com