USD/CAD upside risk above 1.2950 - Scotiabank

Eric Theoret, Strategist at Scotiabank noted that short-term technicals point to the upside, and a clear break above 1.2950 should see gains toward 1.3000 and 1.3200.

Key Quotes

“CAD is consolidating around its 100 day MA for a second consecutive session. The absence of domestic data should leave the focus squarely centered on broader developments, as we note CAD’s response to Tuesday’s OPEC headline-driven moves in oil.”

“Yield spreads are widening in a CAD-negative manner, the 2Y U.S.-Canada spread climbing toward 20bpts at the upper end of its two month range. Measures of CAD volatility are rising across shorter time horizons, and the one month risk reversal is showing signs of turn, pricing a slightly greater premium for protection against CAD weakness. The broader tone is key, and CAD’s risk profile leaves it vulnerable to a rise in risk aversion. We are biased to CAD weakness.”

“USDCAD short-term technicals: bullish—last Thursday’s rejection of the 61.8% Fibo retracement level of the May-July rally remains the clearest bullish USDCAD signal, shifting the focus to upside risk above the 38.2% Fibo at 1.2950. The 1.2950 level is once again being tested, and a break should see gains toward 1.30 and 1.32. Support is expected at 1.2880.”