Range trading bias favors fading rallies – Scotiabank

Scotiabank strategists Shaun Osborne and Eric Theoret, notes the Canadian Dollar is ended the week slightly stronger versus the US Dollar, with cross-currents from equities and crude. Their fair value work and week-ahead model point to continued USD/CAD range trading, with upside likely capped near 1.37 and technical signals turning increasingly USD-bearish.

USD/CAD seen capped near 1.37

“Spot is trading a little above our fair value estimate (1.3625) but the misalignment is not significant. Note that inputs into the model continue to edge in the CAD’s favour on a trend basis which should help limit scope for USD gains, all else equal.”

“Our week ahead model anticipates more range trading for spot within a 1.3581/1.3786 range (75% confidence). The gut feeling on the strategy desk is that USD gains are likely to remain contained to the 1.37 area for now, however.”

“Secondly, the USD remains below key, long-term resistance around 1.37. We noted the USD’s break under trend support/bearish Head & Shoulders trigger earlier this month.”

“Note that daily trend momentum (DMI) is weak but edging towards a USD-bearish signal. Weekly and monthly DMIs are firmly USD-bearish.”

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)