TD looks for a bounce in USD/CAD
TD FX Strategy Research thinks that the 1.2450/60 area in USD/CAD will act as formidable support but the risk of another significant move lower is still intact.
"The narrative we have heard thus far is that USDCAD has come a long way. Indeed, a slew of standard technical measures-such as the RSIs-suggest that this is indeed the case. While we broadly agree with this premise, it is not unusual for USDCAD's correction to run deep; see the January 2016 episode for example though it is worth noting that USDCAD did not rally as much to local peak.
Further, data according to CFTC suggests that positioning is closer to neutral, leaving extension risk lower a non-trivial matter still.
While we think a lot of good news is baked into the CAD-leg, we see little in the way of a catalyst to trigger a significant repricing to generate material USDCAD topside. This is particularly the case on the rates/BoC outlook as the data continues to perform (see recent retail sales/inflation)," TD argues.
"1.2700 acts as the first resistance point while the 1.2850/1.2900 area would have us reconsider fresh shorts," TD advises.
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