- We add to short EUR exposure via a EURCAD sell recommendation. In our view, CAD will outperform on a relative basis in the G10 as US growth accelerates.
- Front-end rate differentials suggest further EURCAD downside, especially if incoming Canadian data beats forecasts.
- We recommend shorting EURCAD at 1.4140 targeting a move to 1.35 with a stop loss placed above 1.4350.
We have previously participated in the EURCAD downtrend by recommending
short-positions in late April and late August booking returns of 3.25% and 0.90% respectively. Although the downtrend appears well established at this point the cross is still down by only around 3% since the start of the year and is some 17% above its 2012 low. The takeaway is similar from BNP Paribas Positioning Analysis. Short EUR positioning is far from extreme, while FX markets have only just started shifting to a positive bias on CAD. In terms of relative EURCAD positioning, our indicator signals -25 (on a scale of -100 to +100).
The upcoming event risk includes the ECB policy meeting next week which we do not expect to stand in the way of EUR downtrend given that currency weakness remains positively aligned with the central bank’s policy goal. Meanwhile Canadian data due over the next two weeks includes exports, monthly GDP and employment. Jobs have been lagging headline growth (the inverse to the US picture) and we see risk that the September report shows a strong rebound after August weaknes
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