Time to take profit on USD/CAD

On the daily chart the 10-day RSI is overbought, but this is merely a sign of the strength of the trend and the fact that pullbacks have been non-existent.

There are signs though that a pullback is due, with the five day MA flattening out. The MACD is also flattening out, although remains above the signal line. A pullback to 1.0845 (the 38.2% retracement of the 1.0609 to 1.0991 rally) for USD/CAD could be healthy, and given the MACD is still significantly above zero suggests pullbacks will be contained in a bullish trend.

If we go more short-term and look at the hourly chart (see below), this backs up the view that a pullback could be on the cards. Bear in mind I felt this would come last week and it didn’t materialise. There is good supply coming in around 1.0980 and the MACD has moved through the signal line, highlighting momentum is accelerating to the downside. You certainly can’t say this is a bearish picture at all, but again a move to support around 1.0830 to 1.0850 would be positive for USD bulls.

In terms of expectations, the market has a modest easing bias over the next twelve months, but inflation is going to be key. Looking at postioning and the recent COT (commitment of traders report) showed a 11.2% increase (up to last Tuesday) in CAD net shorts. However while the 67,345 net short contracts is clearly elevated, it is still well off the levels we saw in April 2013 (75,913 short contracts).

USD/CAD

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.