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The Canadian dollar is recovering thanks to a recovery in oil prices. What’s next?

Here is their view, courtesy of eFXnews:

Nomura FX Strategy Research notes that the CAD sentiment has turned decidedly negative recently a plethora of factors, with particularly a heightened focus on the housing market.

In that regard, Nomura continues to view the developments in Home Capital Group (see here) as not being indicative of the broader market.

“While there continue to be risks, expectations that the broader market is at a tipping point appear overblown,” Nomura argues.

“When combined with the firming outlook for oil prices and stretched negative market sentiment, we see attractive risk-reward in positioning for a USD/CAD retracement via downside option structures. We enter a USD/CAD 2m 1.34/1.31 put spread,” Nomura recommends.

USD/CAD is trading circa 1.3614 as of writing.

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