USD/CAD: Where To Target Ongoing Positioning Squeeze In The Very Short-Term - TD

TD Research notes that USD/CAD has retraced about a quarter of the move from early May and this reflects extreme market positioning, some lost data momentum in Canada and a more supportive technical backdrop emerging for the USD.

"Indeed, regarding the latter, the 5dma has now crossed against both the 10 and 25dma, adding a tailwind to USDCAD. The Canadian data calendar has been light (and mostly second tier releases) but this week’s reports have been mixed.

Meanwhile, oil prices have not been a big driver of USDCAD recently, even though it continues to hover around $50/bbl.  We expect the beta of crude to USDCAD to recover a bit as we look for oil prices to push north of $50/bbl in H2," TD argues. 

"For now, we think the ongoing positioning squeeze and tone of the $ will drive CAD, suggesting a test of the 1.274 level shortly," TD projects.

Source: TD Securities Research