USD/CAD breakout testing initial resistance hurdle near six-week highs

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The Canadian Dollar is down nearly 2% against US Dollar with USD/CAD rallying to fresh six-week highs on the back of last month’s breakout. Despite broader Dollar weakness, Loonie has remains vulnerable with the immediate focus now on near-term uptrend resistance. These are the updated targets and invalidation levels that matter on the USD/CAD charts this week. Review this week’s Strategy Webinar for an in-depth breakdown of this Loonie trade setup and more.

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Canadian Dollar Price Chart – USD/CAD Daily

Technical Outlook: In my latest Canadian Dollar Price Outlook we highlighted the breakout potential in USD/CAD as price was testing multi-month channel resistance. A topside breach / close above the late-March swing low at 1.3250 is needed to keep the long-bias viable targeting 1.3291 ad the 61.8% retracement / May low at 1.3355/57- look for a bigger reaction there IF reached. Monthly open support rests at 1.3190 backed closely by near-term bullish invalidation at 1.3145.

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Canadian Dollar Price Chart – USD/CAD 120min

Notes: A closer look at price action shows Loonie trading within the confines of an ascending pitchfork formation extending off the July lows with price struggling to mount the upper parallel late-last week. Interim support rests at the median-line (~1.3190s) backed by 1.3141/45 - area of interest for downside exhaustion IF reached. Ultimately a break below the lower parallel / 61.8% retracement at 1.3111 would be needed to shift the broader focus lower again.

Bottom line: The USD/CAD breakout remains viable here, but the immediate advance may be vulnerable while below near-term uptrend resistance. From a trading standpoint a good spot to reduce long-exposure / raise protective stops. Ultimately a larger pullback may offer more favorable entries targeting a topside breach of this resistance zone- For now, I’m looking to fade a spike higher. Keep in mind we still have Canada employment data on tap this Friday- stay nimble. Review my latest Canadian Dollar Weekly Price Outlook for a longer-term look at the technical picture for USD/CAD.

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USD/CAD Trader Sentiment

A summary of IG Client Sentiment shows traders are net-short USD/CAD - the ratio stands at -1.79 (35.8% of traders are long) – bullish reading

T raders have remained net-short since Jul y 23 rd ; price has moved 0.7% higher since then

Long positions are 4.8% lower than yesterday and 31.3% lower from last week

Short positions are 4.0% higher than yesterday and 4.5% lower from last week

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD / CAD prices may continue to rise. Traders are further net-short than yesterday & last week, and the combination of current positioning and recent changes gives us a stronger USD / CAD-bullish contrarian trading bias from a sentiment standpoint.

See how shifts in USD/CAD retail positioning are impacting trend- Learn more about sentiment!

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- Written by Michael Boutros, Currency Strategist with DailyFX

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