FxWirePro Call Review: CAD outlook revised from bearish to bullish with 1.12 as likely target

In earlier December, in an article named, “FxWirePro: Canadian dollar likely to weaken further to test support around 1.32 area”, available at http://www.econotimes.com/FxWirePro-Canadian-dollar-likely-to-weaken-further-to-test-support-around-132-area-1037060 , we suggested that the loonie (Canadian dollar) is likely to weaken further, even though it has weakened more than 700 pips since topping around 1.216 in September.

In that piece, we wrote, “While hike pause has led to the initial weakness in the Loonie, it is hardly the factor that has propelled 700 pips decline. The current trade dispute between the United States and Canada with regard to Lumber and NAFTA (North American Free Trade Agreement) has clearly been weighing on the Loonie. In addition to that, Canada’s heavy crude has been broadly left out of the recent rally in oil prices. Very large discount in Canada’s West Canada Select (WCS) has also been weighing on the Loonie. As of today, while Brent benchmark is trading at $63 per barrel, WCS is trading at $23 discount to Brent.”

As the WCS discount widened further and as NAFTA tensions continued to rage, in a subsequent article, available at https://www.econotimes.com/FxWirePro-Call-Review-Loonie-likely-to-weaken-towards-135-area-1067381 , we extended our short side target for the Loonie to 1.35 against the USD.

While the above-mentioned fundamentals remain active, a dovish outlook of the dollar going forward is forcing us to revise our bearish outlook of the Loonie against the USD.

We expect that a materially weak dollar over the course of this year would propel USD/CAD lower as policy winding by other major central banks likely to weigh on the green buck.

Trade idea:

Short USD/CAD at the current rate of 1.251 and at rallies of every 75 pips with a final target around 1.12; the stop loss should be maintained around 1.295 area.