Canadian Dollar Forecasts: The Technical Viewpoint from Scotiabank
Scotiabank’s FX strategist Shaun Osborne has updated clients as to where he predicts the Canadian Dollar is headed next, and it appears the currency is quietly manoeuvring into a position of strength in all its major pairs.
Even against the supremely tough US Dollar the, the Canadian currency is performing surprisingly well.
Donald Trump took FX markets by surprise on Monday when he said the US Dollar was too strong, leading to fears he might put pressure on the Fed not to raise interest rates too hastily.
Higher interest rates tend to support a currency so the effect was to take the wind out of USD’s sails.
This has complicated the delicate situation USD/CAD is in technically.
The pair rests on strong strata of support, including the 1.300 level and the 200-day MA.
This gives the chart a bullish look and film encouraging expectations of a rise back up towards the 1.36 highs.
However, now the exchange rate has started moving more aggressively lower and has successfully breached Thursday’s hammer lows.
This is a more negative development on the daily chart, which chimes with the more bearish message provided by the longer-term charts.
“We still rather think the USD has room to appreciate and look for recent losses to stabilize and reverse modestly from the 1.30/1.31 area. Trend strength signals are mixed across a range of timeframes but are still tending to the USD-negative which will make USD gains hard work in the near-term at least,” says Osborne.
Osborne says it would be a “big boost for the Dollar,” if it could punch above the 1.3197 resistance level, and that that would help confirm the start of a new move higher, up towards the former 1.36 highs.
We agree with his analysis of longer range timeframes tending to be bearish.
Recently we noted an incomplete a-b-c correction pattern on the secular bull trend.
The A and B leg appeared close to finishing, with only the final C leg down to go.
If this is the case it could lend strength to the current attempt by the exchange rate on the daily chart to punch lower.
It could mean a period of considerable weakness with the pair falling to 1.20 or beyond.
Monthly chart of CAD showing incomplete a-b-c pattern with C leg down still to come.
EUR/CAD – Going No-Where
EUR/CAD seems to have “lost its sense of direction,” says Scotia’s Osborne.
Like a permanantly stoned undergraduate, the left-bank EUR/CAD, "was unchanged in a narrow range overall last week and has started off in similar fashion today,” he remarked.
Osborne is mildly bearish overall following the rejection by resistance at 1.4220.
“Medium-term oscillator studies are still reflecting a bearish signal but the intraday and longer-term studies are more equivocal on the direction of the market from here. We think the undertone for the EUR remains soft but the cross may continue to range trade for now,” concludes the strategist.
GBP/CAD - Down She Goes
The GBP/CAD pair gapped down heavily on Monday and although it has since filled the gap, Scotia’s Osborne suggests selling rallies, as the dominant trend remains bearish.
“We think rebounds to the 1.5950 area remain a sell, however. Beyond the intraday charts, there is no sign at this point that the GGBP has based or is poised to reverse more fully at this point.
“Trend strength signals remain adverse and suggest the primary risk for this market remains geared to the downside. Look to sell rallies,” said the strategist.
However, we do feel that this pair could be due another look owing to the 1.95% rally witnessed in the wake of Theresa May's Brexit speech delivered on Tuesday.
The Pound is easily the outperformer in global markets and has broken to 1.6173 against its Canadian peer.
We reckon this could well invalidate the previous call for bearishness, and will update this piece accordingly.
