The Canadian Dollar (CAD) was all too easily pushed around by the weakness in global stocks yesterday, falling through 1.39 briefly in Asian trade Monday before slowly regaining ground in thin North American trade, Scotiabank’s FX strategist Shaun Osborne notes.

A break below 1.3790 to make CAD positive

“Despite weaker stocks and soft commodity prices, the softness in the CAD is looking stretched on our fair value model. Spot is close to 1 standard deviation above its estimated equilibrium (1.3730) which should imply limited scope for USD gains intraday, all else equal.”

“It may take a little time to fully assess the lasting impact of price action over the past few sessions. But on the technical face of it, yesterday’s USD rally through 1.39, failure and lower close on the day should represent a major technical turn in USD/CAD’s fortunes.”

“The USD had been looking toppy anyway and oscillator signals were warning that the USD’s move higher was overextended. Yesterday’s price action has the characteristics of a ‘blowoff top’. Support is 1.3790; a move below here should allow the CAD to pick up more support.”