USD/CAD short-term technicals turn bearish - Scotiabank

Eric Theoret, Strategist at Scotiabank, notes that Fed-induced risk appetite is driving strength in CAD, while short-term technicals have turned bearish.

Key Quotes

“CAD is strong, up 0.5% from Wednesday’s NA close with a near -1.5% gain from Wednesday’s pre-Fed NA session low. Fed-induced risk appetite is driving strength among a range of high-beta, growth-sensitive currencies as market participants consider Chair Yellen’s willingness to maintain continued accommodation.”

“The broader tone is dominant, delivering gains in oil prices while softening measures of implied CAD volatility. Note that the 2Y U.S.-Canada yield spread ended Wednesday unchanged at 20bpts. Near-term domestic risk is limited ahead of Friday’s retail sales and CPI, leaving the focus squarely centered on sentiment and post-Fed positioning.”

“USDCAD short-term technicals: bearish—USDCAD has tumbled back to its 50 day MA (1.3040) for the first time since September 9th, breaking through both its 9 (1.3145) and 21 (1.3056) day MA’s, with risk of continued weakness toward 1.30. Momentum indicators have completely faded their bullish bias and the RSI has even fallen below 50. DMI’s are confirming a shift in the balance of risk and we note the potential for a test of the 38.2% Fibo retracement of the May-July rally at 1.2950.”