USD/CAD shifted to bearish outlook near term – Scotiabank

Eric Theoret, FX Strategist at Scotiabank, has noted the bearish perspective for the pair in the short-term.

Key Quotes

“Shifting expectations for relative central bank policy have provided for recent CAD strength given Monday’s remarkable reaction to Fed Chair Yellen’s speech in which she failed to repeat her previously communicated call for a rate hike in the ‘coming months’.

“The 2Y U.S.-Canada yield spread narrowed accordingly and closed under 25bpts on Monday—an impressive 7bpt decline from the 32bpt level seen as recently as last Thursday. We remain CAD bears on the basis of policy divergence however we acknowledge the challenge posed by the recent moderation in Fed expectations”.

“Trend and momentum signals have shifted to a decisively bearish bias following the impressive break of anticipated support at 1.2911 (38.2% May rally Fibo retracement, see middle chart) and the 50 day MA at 1.2893”.

“Support is limited ahead of the 61.8% Fibo at 1.2739 and we note the absence of congestion ahead of 1.2650. Near-term resistance is expected at 1.2850 and 1.2920”.