Canadian Dollar: Outlook Turning Increasingly Bullish say Scotiabank

Image © Bank of Canada

- USD/CAD weekly indicator has set a more bearish tone

- GBP/CAD has reached a key resistance ceiling

- EUR/CAD is forming a top

The Canadian Dollar is outperforming this week amidst a broad-based recovery in the commodity Dollar complex thanks to an improved global investor sentiment.

It appears fading fears concerning the China-US trade war are a key driver of this improved sentiment while markets remain sanguine about the threats of the US and Canada failing to achieve a renegotiated NAFTA deal.

And, according to fresh technical analysis from Canadian lender Scotiabank the charts are suggesting further gains are possible.

Here are the key levels to watch.

USD/CAD

After undertaking a 'random walk' over recent weeks USD/CAD finally formed a bearish "engulfing line" candlestick pattern on the weekly chart which decided directionality.

Although this was then partially negated by a bullish set-up on the daily chart, that failed to follow-through higher, leaving the bearish weekly signal dominant.  

Now, "short-term patterns are again leaning bearish—our preferred direction for the USD overall in light of the negative weekly signal," says Shaun Osborne, chief FX strategist at Scotiabank.

The exchange rate has failed to break back above the cluster level of the 40 and 100-day MAs at circa 1.3045-55 and this has sounded another downside signal for the pair.

The pair now looks poised for fresh loses, and "to extend its decline" to "key support at 1.2890 (late Aug low) and 1.2863 (200-day MA)," says Osborne.

GBP/CAD

The Pound-to-Canadian Dollar rate has risen to the upper boundary of falling channel which has encompassed market activity for the last 6 months.

Now "better selling pressure has emerged on the short-term chart in the past few hours to help reinforce the ceiling—and perhaps suggest more pressure downside towards 1.6925 support," says Osborne.

Yet despite this it is too early to call a reversal of the August-September uptrend.
Scotiabank is, nevertheless, "distrustful" of the uptrend's capacity to extend and, "with the topside of the range holding, we continue to think that the main risk for the cross is to head back towards 1.6850 at least."

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EUR/CAD

Possibly the most opaque of the three is EUR/CAD which whilst still 'retaining a firmer tone' nevertheless carries some warning signs of impending weakness.

The pair is currently trading at 1.5120 after being blocked at 1.5250 by the 100-day MA, says Scotia.

The messy consolidation pattern which formed over September looked "toppish" - like a double top reversal - and indeed broke lower, falling 50 points below the neckline at 1.5200 as forecast.

Where from here? Scotia thinks the pair's trend ended after touching the 200-day at the recent highs and is now on course for more losses.  
"We continue to think that risks are shifting back towards a drop in the EUR to retest 1.48/1.49," says Osborne.