USD/CAD: further gains toward 1.32 expected - Scotiabank

Eric Theoret, Strategist at Scotiabank noted that USD/CAD bullish tone prevails, and the breach of 1.3050 resistance area pave the way toward 1.3200.

Key quotes

“CAD is soft, down 0.2% and testing Monday’s multi-week low at levels last seen in early August. Relative central bank policy is dominant as market participants consider an increasingly confident Fed and recalibrate their expectations for policy normalization.”

“The adjustment is widening the 2Y U.S.-Canada yield spread in a CAD-negative manner and delivering added pressure via sentiment as we look to a broad turn in measures of implied CAD volatility. Risk reversals have responded accordingly and are pricing a greater premium for protection against CAD weakness.”

“USD/CAD short-term technicals: bullish—momentum signals are bullish, DMI’s are confirming the shift in the balance of risks, and USD/CAD has made a clear break of its short-term MA’s. Near-term resistance has been observed around 1.3050, and a breach should see further gains toward 1.32. We look to near term support at 1.2950 followed by the August 26 open around 1.2920.”