Home Is CAD Oversold; How To Play It Now? – Credit Agricole
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Is CAD Oversold; How To Play It Now? – Credit Agricole

The Canadian dollar enjoyed a nice ride on  strengthening oil prices. Is it too little? Too much?

The team at Credit Agricole examines.

Here is their view, courtesy of eFXnews:

The focus for CAD next week shifts to growth numbers for February. The market is looking for a slight moderation in the annualised figure to 1.8% from 2.4% previously.

The market expects monthly growth to slip -0.2% from the -0.1% clip previously. The weakness reflects the second-round effects of the oil price shocks on growth and investment. Recall, however, the BoC expects a sharp payback in subsequent quarters as the oil impact fades. We still disagree with the BoC’s growth assumptions for 2015, thinking the data will force it to revise its growth outlook lower later in the year.

In turn, scope remains for the BoC to cut rates in H215, though the odds have diminished given the BoC’s hawkish shift.

CAD has bagged the move in oil prices market positions May 2015 Canadian dollar

Our trading strategy for CAD in the near term reflects the recent recovery in oil prices and the prospects for the CAD short squeeze to persist.

Indeed, CAD continues to lag the move in oil prices, which suggests USD/CAD should hit 1.20 very soon. Furthermore, market positioning and technical indicators suggest CAD is oversold, increasing the prospects for a short-term rebound.

For now, we like long CAD/JPY with the upcoming BoJ meeting a potential catalyst for a weaker JPY. However, in the medium term, we think USD/CAD will test the recent highs near 1.28 as poor growth prospects force a BoC rethink.

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Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.