USD/CAD Battle Lines Drawn Ahead of Canada CPI

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• Loonie carves monthly opening-range just below the 2012 TL- Shorts favored sub-1.26
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USD/CAD Daily Chart

Technical Outlook: USD/CAD has carved out a well-defined monthly opening-range just below the 2012 trendline. We highlighted this slope earlier in the week in our Technical Perspective piece with the outlook weighted to the downside while below this threshold. The immediate focus is on a break of the 1.2415-1.26 range (break lower favored).

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USD/CAD 240min

Notes: A closer look at price action shows the pair trading within the confines of a near-term descending pitchfork formation with Loonie versing sharply off the upper parallel this week. The focus remains weighted to the downside within this formation with the lower parallel further highlighting confluence support at 1.2416/20.

A break below basic trendline support extending off the September lows (currently ~1.2380s) would suggest that a more significant high is in place with such a scenario targeting 1.2331/40 and the 61.58% retracement at 1.2268. Bottom line: we’ll favor fading strength while below the weekly high with a breach above 1.2625 needed to shift the broader bias back to the long-side. Added caution is warranted heading into the close of the week with the release of Canada CPI on Friday likely to fuel increased volatility in the CAD crosses.

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• A summary of IG Client Sentiment shows traders are net-long USDCAD- the ratio stands at +1.15 (53.4% of traders are long) – Weak bearishreading
• Long positions are 0.6% higher than yesterday and 6.3% higher from last week
• Short positions are 0.5% lower than yesterday and 13.3% lower from last week
• We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDCAD prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDCAD-bearish contrarian trading bias.

See how shifts in USDCAD retail positioning are impacting price trends- Learn how sentiment can improve your trading!

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex or contact him at mboutros@dailyfx.com.