USD/CAD appears neutral near term – Scotiabank

Eric Theoret, FX Strategist at Scotiabank, stays neutral on spot in the short-term horizon.

Key Quotes

“Spreads remain a headwind as market participants consider the outlook for relative central bank policy in the aftermath of last week’s BoC and Tuesday’s GDP disappointment. Domestic rate expectations are under pressure and the U.S.- Canada 2Y yield spread has reached 20bpts at levels last seen in mid-July. Oil prices have yet to provide a meaningful offset, despite fresh highs in WTI threatening the January 2017 multi-year high. CAD’s correlation to oil (WTI) appears to be firming from remarkably weak levels”.

“Tuesday’s modest rally failed to reach Friday’s high around 1.2920 and a double top would imply a decline toward 1.2700. Bullish daily momentum signals are exhausted and DMI’s have stabilized. We highlight the importance of potential resistance around the midpoint of the May-September decline at 1.2928. Near-term support is expected at 1.2780”.