In previous posts, we were bullish on the USD/CAD for a move up from monthly support at 1.200 and we moved up from the level a trend reversal has been confirmed and we now expect more strength. Our view of the fundamentals sentiment and key technical levels below.
Fundamentals and Sentiment
In terms of the CAD the market is generalyl bullish and here is a typical view: “Relative to its two biggest drivers, US-Canadian rate spreads and the price of oil, the USD/CAD exchange rate has pretty consistently looked higher than it should in recent years. Unlike many crosses, however, this is one that didn’t look odd in the spring of 2020 because oil prices collapsed. However, as they rise, USD/CAD really ought to be under 1.20, and we’re inclined to remain short as a result – for now.” (SOCGEN)
There short but USD/CAD is a long way from 1.200 also crude oil is too far ahead of fair value and we expect it to correct to the downside which will weigh on the CAD.
COT Net Traders Data
Speculators are heavily long the CAD which we can see on the COT Net Traders Positions and despite recent CAD weakness, they still hold a major long position which is near its biggest in the last year while smart money commercial hedgers hold a major short position. This points to more Cad weakness as speculators get taken out on stop.
In terms of the big picture a good quote which sums up our view of the CAD: “The economic performance gap to the US is set to be magnified in the coming months, as the US is miles ahead of Canada in terms of fiscal stimulus, that will translate into a later closing of economic slack in Canada, even with an acceleration in growth over the summer months as consumer spending surges upon re-openings.” (CIBC)
Technical Analysis
We pushed up from the 1.200 level and after a strong rise we saw a correction back to 1.2300 and have now bounced from the level. We view the USD as a buy and expect any pullbacks to be held by double trend line support and the 20 day Moving Average (The green line). To correct the oversold condition and take out speculators we should see a move to 1.2600 with a possible run on to 1.2800.
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