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After a two month bounce, USD/CAD bears may be back in control with the help of the Fed yesterday. Is this a shift back into the longer-term downtrend?

USD/CAD Trend Shift on Daily?

USD/CAD Daily Forex Chart
USD/CAD Daily Forex Chart

The highly anticipated FOMC statement has come and gone, and it looks like a lot of expectations were largely met as the Fed held off from any changes to policy despite citing “substantial further progress” to the economy.

There was some speculation that the Fed would give stronger hints of when a tapering of their bond program would begin, but it looks like we may still be far off from that scenario as Powell did not mention the possibility of at least cutting mortgage purchases any time soon despite a housing market on fire.

Overall, it looks like quantitative easing will not taper as soon as the market hoped, and Dollar bulls seem to be paying for the outcome of yesterday’s Fed event. USD is down against the majors on the session with the help of weak U.S. GDP data, and given that we won’t likely hear from Powell again until the Jackson Hole Economic Symposium in August, the Greenback could see pressure in the short-to-medium term.

If this scenario plays out, traders may use USD/CAD to play a bearish Dollar sentiment, not only because of the likelihood of risk assets like oil and CAD benefiting from longer QE expectations, but also on the price action as the pair signaled a bearish divergence on the daily chart above. And today, the pair is now breaking below the bottom of the ascending channel/rising trendline which could draw in technical bears.

Momentum may pick up to the downside but we do have Canadian GDP and U.S. PCE Price index data tomorrow that may bring in additional volatility and cloud directional bias short-term. We’ll be watching that event and USD/CAD for a potential short-term bounce, and if that plays out, we’ll be on the lookout for bearish reversal patterns at the broken rising trendline to play the possible return of the longer-term trend lower.

Is CAD stronger than USD? Check out our newly released Currency Strength Meter!

What do you guys think? Is the bearish divergence confirmed? Will USD/CAD revisit its 2021 lows around 1.2000 in the next few weeks? 

Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

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