We ask one of the leading Canadian dollar technical analysts where he sees the CAD going against the euro, US dollar and British pound.
The Canadian dollar has been on a tear higher lately, buoyed by the strong fundamental underpinning provided by a recovery in oil prices.
The gains in CAD are however not however evenly spread, each pair has its own quirks and therefore a specific set of price points and technical indicators determining the outlook.
GBP to CAD: Growing Risks of Becoming Oversold
The British pound looks weak against the Canadian dollar with the falls from 2016 highs at 2.09 accelerating through February.
The pound to Canadian dollar exchange rate now languishes towards 1.85 and has therefore taken out a target set by Scotiabank’s Shaun Osborne back in February.
The basis of the forecast was the failure of support identified at the time at 1.9740.
The call appears to have been a good one but any further declines risk taking the GBP/CAD exchange rate into oversold territory.
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“We still rather think the GBP will retain a weak bias, however, and continue to view overshoot risks as being significant,” says Osborne.
However, being a technical analyst, Osborne is still willing to obey trend momentum signals that continue to advocate for further losses.
“We think the GBP remains at risk of weakness while the market remains below 1.91 at least. We continue to view minor GBP gains as a selling opportunity,” says Osborne.
USD to CAD: Tentative Signs of a Reversal
The US dollar has risen from lows at 1.2923 to move higher to 1.3069 in the mid-week session.
Is this a sign of a potential recovery?
"These are tentative developments only and the USD still has its work cut out to rally," says Osborne, “firstly, the noted reversal, a bullish 'morning star', is relatively small in scale."
The bigger the reversal, the bigger the potential bounce it implies.
Secondly, Osborne notes, the trend lower remains very strongly entrenched on the short, medium and longer‐term oscillator signals.
“This makes a sustained USD recovery hard to envisage at this point,” says Osborne.
Scotiabank are of the opinion that any strength in the USD should be sold.
EUR to CAD: Move to 1.40 Still on the Cards
Looking at the euro to Canadian dollar exchange rate the moves off the 2016 highs towards 1.61 look to be intact.
That said, consolidation around the 1.46 level has been notable. Interestingly, the consolidation is occurring at the 200 day moving average. The 200 day moving average is often a strong turning point for financial instruments as markets tend to laden this area with sell and buy orders.
This is because they anticipate either the move towards the moving average will end, or accelerate if broken.
The result is big swings in price through March which have disrupted what had been steady progression towards the 1.40 are.
“We still view this move as incomplete and tend to lean negatively on the outlook for the cross as a result,” says Osborne.
Scotiabank believe more range-trading around 1.45/1.50 is however likely in the near-term.