Scotiabank: USD/CAD Shows Bearish Momentum, Poised for Range Trade
Scotiabank’s FX Strategy team identifies weakening bullish structure in USD/CAD and growing selling pressure, signaling a shift toward range-bound trading. Technical indicators—lower highs, RSI retreat from overbought, flattening moving averages—and above-average volume on declines support the bearish momentum thesis. Key levels: immediate resistance 1.3650–1.3680, primary resistance 1.3750; immediate support 1.3450–1.3480, primary support 1.3350 (200‑day MA). Fundamentals back the view: divergent Fed vs. BoC policy and firmer oil prices strengthen CAD via yield differentials and trade terms. Options risk reversals favor CAD calls and leveraged funds have trimmed net long USD positions. Trading implications: shift from trend-following to range strategies (mean reversion, oscillators, boundary entries with tight stops). Watch Canadian CPI, US NFP, central bank speeches and WTI moves for range tests or breakout triggers. Risk management should focus on defined support/resistance and readiness for a breakout that would restart a directional trend.
Bearish
The analysis points to fading USD bullish momentum and increasing CAD support driven by technical signals (lower highs, RSI retreat, flattening MAs) and above-average selling volume—classic precursors to consolidation or prolonged range behaviour rather than a fresh uptrend. Fundamentals amplify this: BoC’s relatively hawkish stance versus a cautious Fed and firmer oil prices improve Canada’s yield and trade outlook, exerting downside pressure on USD/CAD. Market positioning and options flow (risk reversals favoring CAD calls; leveraged funds reducing USD net longs) corroborate the bearish tilt. For crypto traders the implication is neutral-to-negative for USD-pegged FX exposure and for crypto assets priced in USD: a stronger CAD or range-bound USD/CAD reduces likelihood of sustained USD appreciation that can spur risk-off moves. Short-term, expect choppy price action within the 1.3350–1.3750 range; range-bound strategies (mean reversion, selling near resistance, buying near support) should outperform breakouts. Long-term, a decisive break below 1.3350 would signal deeper USD weakness; conversely a break above 1.3750 would invalidate the bearish/range thesis and could trigger fresh USD strength. Historical parallels (early 2023, late 2021) show similar consolidation phases before trend resolution, so traders should use tight risk controls and monitor economic prints (CPI, NFP) and central bank communication for breakout catalysts.