A bearish tone set in for the USD/CAD outlook as Friday unfolded. The dollar, perched near a four-month low, held its breath ahead of a game-changing US inflation measure. The core PCE report will provide valuable insights into the Fed’s considerations for potential interest rate cuts in the upcoming year.

Notably, the US core personal consumption expenditures data is the Federal Reserve’s favored underlying inflation gauge. Anticipations suggest a 3.3% annualized growth in the core measure, a slight decrease from October’s 3.5% upswing.

Meanwhile, the Canadian dollar continued its recent rise against the US dollar, spurred by a Wall Street rally on Thursday. As a result, there is pressure on speculators with significant short positions in the Canadian dollar.

“A rebound in US stocks prompted the USD to relinquish yesterday’s gains. Therefore, it pushed USD-CAD lower in the process,” noted George Davis from RBC Capital Markets. Notably, Wall Street recovered much of the previous day’s losses as economic data increased optimism about potential Fed rate cuts.

At the same time, speculators scaled back their bearish bets on the Canadian dollar, reducing positions that had reached a six-year high in November.

Elsewhere, Canadian retail sales rose by 0.7% in October compared to September, with even more substantial growth in volume terms. However, a preliminary estimate for November showed no growth. 

USD/CAD key events today

• Canada GDP m/m
• US Core PCE Price Index m/m
• US Consumer Sentiment

USD/CAD technical outlook: Downtrend extends to the key 2.414 fib level

USD/CAD 4-hour chart

Despite weakness in the downtrend, USD/CAD has made a new low, extending the price down to the key 2.414 fib level. However, the price is staying close to the 30-SMA, a sign that bears are not as strong as they were when the move began. Moreover, the RSI has made a bigger bullish divergence, showing bearish momentum has weakened. 

Since bears are weaker and the price has met strong support at the 2.414 fib level, bulls might resurface for a pullback or reversal. Therefore, the price will likely soon retest the 1.3350 level and the 30-SMA. A break above the SMA would confirm a bullish takeover.

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