6 Mar 2015
CAD overvalued, but consolidation likely – TDS
FXStreet (Barcelona) - Shaun Osborne, Chief FX Strategist at TD Securities, notes that with Canadian short-term spreads narrowing, the TD FV estimate has edged down lower to suggest that CAD might be mildly overvalued, further sharing that technicals suggest USD/CAD might consolidate, key support at 1.2400/05.
Key Quotes
“For the CAD specifically, our expectations of a slightly-better-than-consensus trade report may not provide the CAD with that much support; the deficit is still expected to widen. But much will hinge on the USD’s overall reaction to the US jobs data.”
“Overall, we think narrowing short-term spreads (the 2Y yield spread dropped to near flat yesterday from the recent peak around +23bps) is a clear impediment to the USD progressing more significantly at this point. The 5Y spread has dropped to +62bps, nearly 20bps narrower than the recent peak.”
“As spreads have contracted in the past couple of weeks, our CAD FV estimate has edged noticeably lower (from a mid-February high of 1.2630 to this morning’s reading of 1.2389 (based on last night’s close) - implying a mild spot over-valuation which we think should be reflected in limited upside potential for the USD overall and more pressure towards support in the upper 1.23s.”
“Technical pointers suggest more consolidation; trend momentum signals are mixed across a range of timeframes.”
“We spot short-term resistance at 1.2505/10 while 1.2400/05 (trend and 40-day MA at 1.2405) is key support on the daily chart.”
Key Quotes
“For the CAD specifically, our expectations of a slightly-better-than-consensus trade report may not provide the CAD with that much support; the deficit is still expected to widen. But much will hinge on the USD’s overall reaction to the US jobs data.”
“Overall, we think narrowing short-term spreads (the 2Y yield spread dropped to near flat yesterday from the recent peak around +23bps) is a clear impediment to the USD progressing more significantly at this point. The 5Y spread has dropped to +62bps, nearly 20bps narrower than the recent peak.”
“As spreads have contracted in the past couple of weeks, our CAD FV estimate has edged noticeably lower (from a mid-February high of 1.2630 to this morning’s reading of 1.2389 (based on last night’s close) - implying a mild spot over-valuation which we think should be reflected in limited upside potential for the USD overall and more pressure towards support in the upper 1.23s.”
“Technical pointers suggest more consolidation; trend momentum signals are mixed across a range of timeframes.”
“We spot short-term resistance at 1.2505/10 while 1.2400/05 (trend and 40-day MA at 1.2405) is key support on the daily chart.”