27 Jun 2014
USD/CAD risk is to the downside - TD Securities
FXStreet (Guatemala) - Shaun Osbourne, Chief FX Strategist at TD Securities notes that USD/CAD is closing out the week on the defensive, albeit in a very tight range below 1.07 and at a 5-month low.
Key Quotes
"The prospect of an even deeper pullback looms a little larger over the market. We had noted support in the low 1.07 area as something that might give the USD a little more durable support but that prospect looks long gone now."
"With little data on tap and public holidays in the US and Canada next week, the USD tone is likely to remain defensive. The US reports non-farm payrolls next Thursday, Canada’s labour market report is due in two weeks, just ahead of the BoC FAD on July 16. This is perhaps the most realistic point on the calendar where developments could realistically throw out an anchor to slow the USD/CAD slide."
"We stress that fundamental variables—commodities, spreads—have not
moved significantly in the CAD’s favour over the past few weeks. Rather, the USD’s push below 1.08 seems to have triggered a broader reassessment of positioning and hedging needs among investors who have been short CAD or under-hedged on their USD-denominated portfolios. That demand may run on for a little longer."
"Left-field considerations which might yet through a wrench in the CAD rally works perhaps revolve around the outlook for risk assets. US stocks have been flashing topping signals, suggesting the risk of a correction, if only shallow, in the recent bull move."
"Energy prices have also shown signs of flagging this week, despite geo-political tensions remaining obvious. A short, sharp shift away from risk would undercut the CAD rally to some extent at least, we think, even if the CAD is not—currently—too highly correlated with stocks."
"On the charts, USD/CAD remains well-over extended but there is no sign of a turn in the trend. Short-term signals suggest a modest bid tone through the late European morning might extend above 1.0695 to the low 1.07s but we still spot resistance in the 1.0725/30 range. Overall, risks remain geared to a drop back to 1.0600/50."
Key Quotes
"The prospect of an even deeper pullback looms a little larger over the market. We had noted support in the low 1.07 area as something that might give the USD a little more durable support but that prospect looks long gone now."
"With little data on tap and public holidays in the US and Canada next week, the USD tone is likely to remain defensive. The US reports non-farm payrolls next Thursday, Canada’s labour market report is due in two weeks, just ahead of the BoC FAD on July 16. This is perhaps the most realistic point on the calendar where developments could realistically throw out an anchor to slow the USD/CAD slide."
"We stress that fundamental variables—commodities, spreads—have not
moved significantly in the CAD’s favour over the past few weeks. Rather, the USD’s push below 1.08 seems to have triggered a broader reassessment of positioning and hedging needs among investors who have been short CAD or under-hedged on their USD-denominated portfolios. That demand may run on for a little longer."
"Left-field considerations which might yet through a wrench in the CAD rally works perhaps revolve around the outlook for risk assets. US stocks have been flashing topping signals, suggesting the risk of a correction, if only shallow, in the recent bull move."
"Energy prices have also shown signs of flagging this week, despite geo-political tensions remaining obvious. A short, sharp shift away from risk would undercut the CAD rally to some extent at least, we think, even if the CAD is not—currently—too highly correlated with stocks."
"On the charts, USD/CAD remains well-over extended but there is no sign of a turn in the trend. Short-term signals suggest a modest bid tone through the late European morning might extend above 1.0695 to the low 1.07s but we still spot resistance in the 1.0725/30 range. Overall, risks remain geared to a drop back to 1.0600/50."