The BOC and Poloz goal is to see the FED raise and perform the lower CAD job for the BOC. That means USD/CAD higher. Current 2 and 3 year yield spreads are running 0.31 and 0.41. The 2 year is up 3 bps from 0.28 bps in overnight trade. Intraday, USD/CAD is oversold but oversold contains hurdles.
Viewed from longer term averages dating to 1998 to 2000, USD/CAD is vastly oversold. Viewed from averages from 2003 – 2007, USD/CAD has overbought problems and derived from the 2003 to 2006 boom in the last economic cycle. Overbought means USD/CAD begins to enter extrmes at 1.4100’s to 1.4200’s and 1.4400’s. Its not uncommon for a wide ranging pair such as CAD to violate those extremes as we’ve seen many times since 2008. But 1.4100’s begins warning to view shorts rather than build on longs. What’s driving USD/CAD is oversold from 2008 to current intraday period because USD/CAD built an enormous base of multiple supports from 1.1685 to 1.2289.
To travel higher, USD/CAD must break 1.3132 and 1.3192. Below rough supports begin at 1.3022 and 1.2966. Most important line is 1.2966 because then the 50 day average must view at 1.2859. Below 1.2966 and 1.2859 lies nothing until 1.2200’s, specifically 1.2289 and 1.2209. Look for Bottoms and a reload of longs at 1.2966 to 1.3022. Plenty of room to run for USD/CAD upsides with targets beginning at 1.3300’s if hurdles break at 1.3132 and 1.3192.
Brian Twomey, Inside the Currency Market, btwomey.com