Societe Generale FX Strategy Research notes that CAD has tracked oil prices and relative yields in recent years and on oil prices, looks to have over-reacted to the most recent move.
In that regard, SocGen notes that when USD/CAD was last above 1.37, Brent was USD 15/bbl cheaper, which makes CAD longs attractive and the time to buy is approaching as the valuation gets stretched.
As such, SocGen argues that a break higher in USD/CAD could see the major technical resistance at 1.3840 tested and a break above could see us go as far as 1.40.
“At which time valuation, both against the US dollar but also against AUD and NZD, is pretty irresistible,” SocGen advises.
USD/CAD is trading circa 1.3718 as of writing.
Source: Societe Generale Cross Asset Research
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