USDCAD off highs ahead of busy week ahead. USD shorts (CAD longs) continue to lose money. Positive NAFTA headlines just crossing.

Summary

• USDCAD: Dollar/CAD is entering NY trading this morning with a softer tone as some Brexit related excitement in the GBP has caused some broad USD selling in the last few hours.  The 1.3125 level (61.8% Fibonacci retracement of the May to September 2017 decline) capped the rally in overnight trade and the market has come off about 40pts, but USDCAD is still holding Friday’s closing highs for the time being (which is positive).  It’s going to be a busy week ahead for traders, with the FOMC meeting on Wednesday and two key Canadian data points on Friday (CPI and Retail Sales).  Traders will also be watching for any trade-related headlines from the G20 over the next two days and any Brexit-related headlines coming out of the EU Summit on Thursday and Friday, in so far as how the broader USD responds.  Friday’s COT report from the CFTC was interesting in that it showed a futures market that continue to be content with holding USD short (CAD long) positions that are losing money.  USDCAD has rallied 150 points higher since Tuesday (the end of the weekly reporting period for the COT report) with no decrease in open interest since then, which tells us USDCAD might be vulnerable to a short squeeze here.  Another interesting development in the COT report was the flip to net short in the AUD futures market; CAD’s commodity cousin.  Given a decent correlation between AUD and CAD since February, we ask...is this a negative omen for CAD as well?  All that being said, we think USDCAD might cool off a bit here given its recent run and some broad USD sales that are now coming in this morning.  Support today checks in at the 1.3050-60s, then 1.3025.  Resistance today is 1.3125 (the overnight high), then 1.3180.  Just as we go to press, we’re seeing some headlines from finance minister Bill Morneau saying “we’re making progress on NAFTA negotiations”.  Support at 1.3050-60 is now being put to the test.

   

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About the Author

Erik Bregar - Director, FX Trading

Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

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