Canadian Dollar Forecasts: CAD Strength Ahead

Where is the Canadian dollar exchange rate complex headed next?

“While the GBP remains capped by the 1.8650/60 area, the January 2014 high, we think the trend favours more GBP weakness near-term.” - Shaun Osborne, TD Securities.

TD Securities have briefed clients on what they believe the next moves in Canada’s currency to be against the US dollar, Euro and pound sterling from a technical perspective.

The overall picture we are seeing is a firming CAD with the break-neck losses witnessed against the US dollar seen over recent months stalling and reversing.

The strength against the USD has fed into other rates such as the GBP-CAD and EUR-CAD.

Before we look at the exact levels to watch out for in the road ahead, here are the latest spot market levels.

• The British pound to Canadian dollar exchange rate (GBPCAD) is at 1.8593. The year’s high was at 1.9557.
• The euro to Canadian dollar exchange rate (EURCAD) is at 1.3714, this is down from a maximum of 1.4491.
• The US dollar to Canadian dollar rate (USDCAD) is at 1.2437, the high was at 1.2835.

NB. that all currency quotes mentioned above refer to the wholesale market. Your bank will affix a discretionary spread when transferring money internationally. However, an independent provider will seek to undercut your bank's offer, thereby delivering up to 5% more currency in some instances. Please learn more.

Forecast for the Canadian Dollar Against the Pound

We note that the GBP to CAD remains above 20, 50 and 100 day moving averages, confirming to us that technically speaking the uptrend is alive.

However, we are potentially headed for the fourth weekly decline in this rate which would suggest that we are well on the way to seeing the pairing slump back into its 2014 range below 1.8650.

According to analyst Shaun Osborne at TD Securities, any strength that we may see in the pound sterling are to be assumed to be corrective in nature, i.e unsustainable.

“While the GBP remains capped by the 1.8650/60 area, the January 2014 high, we think the trend favours more GBP weakness near-term,” says Osborne.

TD Securities continue to view the current slide in the cross as part and parcel of the big, broader, bull break-out that occurred early this year after a year-long consolidation.

This is shown in the chart above.

“As such, we have to allow for the risk of a retest of the bull break out point (just under 1.83),” says Osborne.

US to Canadian Dollar Outlook: The USD Has Peaked

The dollar’s impressive rally appears to have been put on the back burners for now.

This chimes with an increase in the number of viewpoints calling for a cessation of the dollar rally - for the near-term at least.

According to Osborne, short-term (1-hour, 6-hour and daily) trend momentum remains negative so we favour more downside probing—and limited upside potential—near-term from this perspective as well.

Strategically traders could be looking to sell against resistance at 1.2545/50 or on a clear break under 1.2450.

Concerning the bigger Osborne notes:

“Technical picture for USDCAD remains unequivocally USD-negative, supporting the short-term prognosis above.

“Daily and weekly bearish reversals last week suggest an important peak is in, setting a potential double top (neckline trigger at 1.2359 for a drop to the low 1.19s).

“A third, consecutive daily close below the 40-day MA today supports the negative technical picture for USDCAD. Look to fade USD strength or “go with” the break under 1.2350/60.”

Euro v Canadian Dollar Forecast

The euro is meanwhile seeing something of a renaissance across the board, and the CAD has not been immune.

Nevertheless, “EURCAD’s recovery from long-term (retracement) support at 1.3450 may be starting to show some signs of flagging, right about where it might be expected to run into supply—the base of the range in place through late 2014/early 2015,” says Osborne.

The rally looks corrective, ahead of another leg lower possibly (bear flag formation in development).

“Intraday trading patterns look negative and we pay attention to short-term or intraday turns which come at more information before we can draw any firm conclusions, however. Monitor,” suggests Osborne.

It would seem then that it is the Canadian dollar that is enjoying the positive momentum at the present time.

Watch out for the resumption of the USD trend higher - if this were to occur we could see a change in sentiment towards the CAD.