USD/CAD bullish into year-end and the first half of 2017 - Scotiabank

Eric Theoret, Strategist at Scotiabank, noted that  they remain bearish CAD (bullish USD/CAD) into year-end and the first half of 2017. They look to USD/CAD gains through the upper 1.35s toward the 61.8% Fibo (1.3839) retracement of the January May decline.

Key Quotes

“CAD is soft, down a modest 0.2% from Friday’s close, trading just above last Thursday’s multi-week low. Sentiment appears dominant as CAD ignores the supportive impact of both higher oil prices and narrowing yield spreads. We note the broad rise in measures of implied CAD volatility across a range of time horizons and highlight the clear shift in the one month risk reversal—steadily pricing a higher premium for protection against CAD weakness.”

“Domestic risk is likely to be elevated throughout the week as we look to Tuesday’s wholesale trade, Thursday’s retail sales and CPI, and Friday’s monthly GDP release for October. Last Friday’s CFTC data detailed a continued widening in the net short CAD position, pushing to fresh lows at levels last seen in March. We remain bearish CAD (bullish USDCAD) into year-end and the first half of 2017.”

“USDCAD short-term technicals: bullish—USDCAD is consolidating last week’s rally from the upper 1.30s to the lower 1.34s and near-term congestion appears to be coinciding with both the 21 (1.3332) and 50 (1.3342) day MA’s. Momentum signals are bullish and the DMI’s are providing confirmation following last week’s bounce off the ascending trend-line drawn from the May-August-September lows at levels that roughly coincided with the 200 day MA. We look to USDCAD gains through the upper 1.35s toward the 61.8% Fibo (1.3839) retracement of the January May decline.”