30 Jan 2015
USD/CAD near-term downside risks – TDS
FXStreet (Barcelona) - Shaun Osborne, Chief FX Strategist at TD Securities, views technicals suggest that USD/CAD sees a modest near-term downside risk, with the pair seeing a potential double top-formation at 1.2676.
Key Quotes
“Our correlation matrix highlights the fact that the 5-year US-Canada spread has the strongest correlation with spot moves currently, well ahead of the CAD’s correlation with crude.”
“We noted earlier this week that the shift in the Canadian curve had been material—with US yields rising above Canadian equivalents right across the curve (2s through 30s for bonds). In many cases, spreads are at multi-year highs in the US’s favour.”
“Still, with oil prices steadying, spreads can only do so much and spot USDCAD is starting to look a little stretched relative to fundamentals; our FV equilibrium rate for USDCAD today stands at 1.2460, with spot two big figures, or about 1 standard deviation above that point.”
“Canada has experienced a data lull over the past few days but event risks picks up a little today with November GDP; we look for an upside surprise in the data but +0.1% versus flat for the market consensus is not going to lift the CAD materially.”
“A positive Canadian surprise and very disappointing US data might knock funds modestly lower but will not alter the market’s perception of the broader risks around the monetary policy outlook—when the Fed will start to tighten and whether markets need to start pricing in another 25bps rate cut beyond that one that is already factored in for the Spring.”
“On the short-term charts, we see some modest downside risk to USDCAD near-term; a small potential double top formation at 1.2676 (trigger at 1.2607) may come into play today; a break lower targets 1.2535/40.”
Key Quotes
“Our correlation matrix highlights the fact that the 5-year US-Canada spread has the strongest correlation with spot moves currently, well ahead of the CAD’s correlation with crude.”
“We noted earlier this week that the shift in the Canadian curve had been material—with US yields rising above Canadian equivalents right across the curve (2s through 30s for bonds). In many cases, spreads are at multi-year highs in the US’s favour.”
“Still, with oil prices steadying, spreads can only do so much and spot USDCAD is starting to look a little stretched relative to fundamentals; our FV equilibrium rate for USDCAD today stands at 1.2460, with spot two big figures, or about 1 standard deviation above that point.”
“Canada has experienced a data lull over the past few days but event risks picks up a little today with November GDP; we look for an upside surprise in the data but +0.1% versus flat for the market consensus is not going to lift the CAD materially.”
“A positive Canadian surprise and very disappointing US data might knock funds modestly lower but will not alter the market’s perception of the broader risks around the monetary policy outlook—when the Fed will start to tighten and whether markets need to start pricing in another 25bps rate cut beyond that one that is already factored in for the Spring.”
“On the short-term charts, we see some modest downside risk to USDCAD near-term; a small potential double top formation at 1.2676 (trigger at 1.2607) may come into play today; a break lower targets 1.2535/40.”