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FX Strategists at Scotiabank remain near-term bearish on the pair and also see the next support zone in the mid/low-1.2700s.

Key Quotes

“Domestic rate expectations are firm with OIS pricing roughly one full 25bpt BoC rate hike for October and another 20bpts by January. Yield spreads are narrowing in a CAD-supportive manner (2Y, 5Y back under 60bpts) and measures of sentiment are delivering added support as risk reversals suggest a material decline in the premium for protection against near-term CAD weakness. Longer-term risk reversals are remarkably stable, however. Net short speculative positioning leaves CAD vulnerable to additional near-term strength”.

USDCAD is testing fresh four month lows under 1.2800 following its break through the lower bound of the descending trend channel from June. Technical signals are broadly bearish and additional near-term support appears limited ahead of the May lows in the mid/lower-1.27s. We also note the importance of the midpoint of USDCAD’s range from September 2017 (1.2724) and look to resistance around the 200 day MA (1.2869) and the 38.2% retracement of the September 2017-June 2018 rally at 1.2880″.