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The Canadian dollar suffered from falling oil prices, but its fate could change.

The team at Bank of America Merrill Lynch explain:

Here is their view, courtesy of eFXnews:

If USD/CAD reaches 1.39, we suggest a short trade with a stop of 1.4225 and target of 1.30.

A combination of long-term exhaustion, momentum divergence and upcoming strong crude oil seasonality suggest it may be worthwhile to fade the next USD/CAD rally. The monthly chart completed a TD Sequential exhaustion signal to end September.

This means for up to the next 12 months, the trend may move sideways to down, with a calculated risk level up to 1.39.

USDCAD monthly chart 2016 Canadian dollar

The momentum on the weekly chart is bearishly diverging from price. This means the uptrend is slowing down. Because the trend was overbought in the 1Q15 rally and less overbought in the 3Q15 rally, it is possible that USD/CAD may drift to the high 1.30s but not reach overbought in 4Q15. This would present a large bearish divergence. Upcoming seasonal strength of WTI crude oil during mid January to mid April supports CAD.

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