After yet another disappointing inventory report for oil bulls, WTI is getting closer to the critical $47 support. However, USD/CAD is not reaching new highs. What’s next? Here are two opinions:
Here is their view, courtesy of eFXnews:
CAD: Momentum Traders Pile Into The Short Trade; What’s The Trade? – TD
TD FX Strategy Research notes that USD/CAD continues to trade well in excess of its cyclically implied level despite the weakness in some of the underlying drivers (lower CAD rates and oil).
However, TD argues that USD/CAD price action has run well ahead of the fundamentals since key technical breaks are signaling triggers for momentum traders to pile into the trade especially following the break of the 50% retracement level which puts topside resistance near 1.3840.
Even so, TD thinks the negative CAD meme will slowly run its course as momentum might start to wane soon with technicals (like RSI) also pointing to stretched levels. When
As such, TD argues that the fundamental case favors fading the USD/CAD rallied once momentum starts to slow down as the pair inching closer to its topside technical resistance.
USD/CAD is trading circa 1.3720 as of writing.
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USD/CAD: Tech Resistance At 1.3840; What’s The Trade? – SocGen
Societe Generale FX Strategy Research notes that CAD has tracked oil prices and relative yields in recent years and on oil prices, looks to have over-reacted to the most recent move.
In that regard, SocGen notes that when USD/CAD was last above 1.37, Brent was USD 15/bbl cheaper, which makes CAD longs attractive and the time to buy is approaching as the valuation gets stretched.
As such, SocGen argues that a break higher in USD/CAD could see the major technical resistance at 1.3840 tested and a break above could see us go as far as 1.40.
“At which time valuation, both against the US dollar but also against AUD and NZD, is pretty irresistible,” SocGen advises.
USD/CAD is trading circa 1.3718 as of writing.
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