We have been pounding away at USD/CAD on this blog for months. We have been almost relentlessly bearish on USD/CAD and the push nearly to parity last week validated our long-held stand.

After the recent three-day relief rally in USD/CAD , the market is set-up for a breakdown.

There are several things working towards a lower CAD:

- U.S. stocks rallied to a fresh 17-month high on Tuesday and the risk appetite trade is looking as strong as it has this year.

- Oil is at $81 and withing range of the cycle high of $83.16. A break higher would undoubtably add to the CAD’s momentum

- Similarly, copper appears ready for a bullish run. It formed a bullish hammer pattern on the daily charts on Tuesday and has been making higher lows.

- On Wednesday, Bank of Canada Governor Mark Carney is speaking in Ottawa. After the twin failures to stay a above 1.02 this week, USD/CAD is set-up for a bearish breakdown lower if Carney signals that the BOC is ready to start hiking rates.

- Further, the technical picture remains moderately oversold but as the Bollinger Bands show, the conditions have been relieved somewhat. We can’t rule out a rebound to 1.0350 or even 1.0400 but we feel like the risk of missing a move to well below parity makes it worth taking. We will be adding to shorts all the way up to 1.04 but would have to start covering above that.

- One thing that gives us pause is the massive short positioning in the CFTC data in USD/CAD. We fear a short-cover rally but we also feared the same thing in EUR/USD and thus far, it has failed to materialize.