May try to test support 1.3475 – Scotiabank

The Canadian dollar (CAD) is trading slightly off its overnight peak around 1.3575, but remains broadly firm. The pro-risk mood could extend CAD sentiment a bit of support, notes Shaun Osborne, chief FX strategist at Scotiabank.

More USD/CAD weakness ahead

“A more likely explanation for the CAD gains is that we may be seeing the impact of record net short positions in the CAD reflected in recent CFTC data becoming increasingly uncomfortable with CAD strength. CAD net short activity picked up sharply by mid-year, reflecting weaker cyclical dynamics and the BoC’s relatively early start to the easing cycle.”

“Like the previous (albeit less significant) increases in CAD net sales (in April and November last year), CAD’s most recent decline has stalled around 1.39, and now CAD’s three-week advance from this low it could squeeze weaker CAD short hands. and giving the CAD a short cover lift. Spot losses extended marginally below 1.3595 to hit a four-month low for the USD.”

“Trend strength signals are aligned bearish for USD/CAD on the intraday and daily DMI oscillators, while the weekly study is close to turning bearish. Losses below 1.3590/95 (200-day MA and May and July lows) are marginal but suggest more USD/CAD weakness ahead. Support is 1.3560 (50% retracement of 2024 USD rally) and 1.3475 (retracement and major trend). Resistance is 1.3625/50.”