USD/CAD Looks Set to Arrest 4-Day Slump, Finding Support at the 20-Day MA

USD/CAD PRICE, CHARTS AND ANALYSIS:

• The Loonie Appears to Have Run Out of Steam Ahead of US CPI Release.
• BoC Deputy Governor Issues Warning Around the Potential of Renewed Price Pressures.
• IG Client Sentiment Data Shows Retail Traders are Currently Net-Short with 60% of Traders Holding Short Positions.
• To Learn More About Price Action,Chart PatternsandMoving Averages, Check out theDailyFX Education Series.

Read More: The Bank of Canada: A Trader’s Guide

USDCAD is on course to snap a four-day losing streak with support being found at the 20-day MA. It’s been an interesting couple of days for USDCAD following a break of the long term descending trendline that had been in play since October 2022. The recent drop in the DXY and rise in Oil prices due to the ongoing Geopolitical tensions helping facilitate a strong pullback in the pair of around 200-pips.

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FOMC MINUTES RELEASE WITH US CPI AHEAD

Earlier today we had the US PPI data and the Fed minutes release with both risk events not really providing US Dollar bulls with any comfort. The dovish rhetoric from Fed officials this week continues to drive the price action on the DXY ahead of the CPI print tomorrow.

Based of comments from Fed Officials this week I’m speculating that they would prefer another drop in inflation from tomorrows print. Fed Policymaker Rafael Bostic saying today that should inflation stall then the Fed might need to do more.

Looking at the Loonie and Bank of Canada (BoC) Deputy Governor Nicolas Vincent warned that supply shocks, limited competition and technology could have shifted the pricing landscape permanently. He commented further that this could see firms continue to increase prices at larger and more rapid rates which would present obstacles for the Central Bank to achieve its inflation target.

ECONOMIC CALENDAR AND EVENT RISK AHEAD

There is not a lot in terms of data from Canada this week but next week does bring Canadian inflation data. This should be an interesting one given the comments by the Deputy Governor of the BoC. The headline inflation came in at 4% YoY in August with the Central Bank targeting 1-3%. Any signs of an uptick here could provide a challenge for the BoC.

US Inflation tomorrow is also key with Rafael Bostic comments hinting that the Fed would not want inflation to stall at current levels. Headline inflation is expected to come in at 3.6% a slight drop-off from last month’s print of 3.7%. I am sure the Fed would prefer a drop in the headline print considering we have had 2 consecutive months of increases following a 3% print in June which seemed extremely promising at the time.

US Inflation

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TECHNICAL ANALYSIS AND FINAL THOUGHTS

USDCAD

USDCAD looked ready for a bigger move to the upside following the break of the descending trendline in play since October 2022. However, having printed a new high and with the RSI in overbought territory a retracement should not have come as a complete surprise.

USDCAD has found support at the 20-day MA with the 50-day MA resting slightly lower at around the 1.3540 mark. We also have the ascending trendline which could come into play should we see a return of DXY weakness following the US CPI release tomorrow.

On the upside we have immediate resistance at the 1.3650 handle before the recent high around 1.3780 comes into focus. USDCAD has a tendency to remain rangebound for prolonged periods and there is a possibility that we enter a similar phase once more.

USD/CAD Daily Chart

Source: TradingView, prepared by Zain Vawda

IG CLIENT SENTIMENT

Taking a quick look at the IG Client Sentiment Data which shows retail traders are 60% net-short on USDCAD. Given the contrarian view adopted here at DailyFX, is USDCAD destined to rise back toward the recent high at 1.3780?

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— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda