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CAD strength continues to show no signs of running out of strength as the rally from 1.1700's that started last week on the back of M&A flow has accellerated from an increase in risk acceptance across the board. The CAD gains alone have been transferred into an anything but USD story now with both the Euro and Sterling showing signs of strength. This despite data that suggests that Germany will have still contracted in Q2 and UK House prices still in the negatives. News out of Europe that CIT has struck a 3billion dollar bond deal aided the recovery overnight and put equities on the upward trajectory. Across the board currencies were bid vs the USD and the Swiss Franc is back in play with less concern over Central Bank intervention. Data today in CAD, showed better than expected international securities numbers and wholesale trade, although less significant data. The BOC decision comes out tomorrow with no changes expected but more talk on the CAD Dollar to be highlighted. The Bank will look to jawbone the cross higher, but for now the trend is looking for 1.0800. For USD buyers, the safe play is to leg in at current levels as this run has been quite sizeable in such a short time and thus pullbacks are expected to have equate velocity. Recommned purchases under 1.1050 with second level of 1.0940 and third at 1.0880 for a minimal pullback to 1.1456 over the coming month.

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USD/CAD – Spot managed to rebound a little more than we expected yesterday but the failure to regain a strong foothold above 1.11 has prompted a renewed sell off in funds again today. Despite the chop in trade this week and the sharp rebound in spot though the middle of the North American morning session yesterday, we still see downside risks for the USD in the near term. The slide in funds has slowed over the past few days but the deceleration may be a “running consolidation” ahead of the next leg lower. We spot key short term support now at 1.0920/25, likely out of range today, especially with yesterday’s 1.0965 low still ahead of the market. Key short term resistance is at 1.1075/80 intraday now, with pivotal short term resistance at 1.1120 (USD better bid above). We still prefer to sell rallies.

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USD/CAD – The underlying tone remains weak for the USD – or rather more specifically, broadly strong for the CAD. The short term (6-hour) chart suggests that after the recent deceleration in the USD sell-off over the past week or so, the USD slide may be picking up speed again. The market has balked at pushing under 1.08 so far this morning and a bounce off the 1.08 level may provide some scope for a squeeze higher but gains are liable to be limited to the low/mid 1.09s in the short term at best. While the USD is looking somewhat oversold on the basis of short term oscillator studies, the underlying bear trend momentum in this market remains very strong across a range of timeframes; this suggests only limited scope for a counter trend reversal at the moment, and the strong likelihood of new cycle lows. Sell rallies. Below 1.08, there is a band of support in the upper 1.07 zone (June 1st low at 1.0784) that may provide some short term support for the USD but below here, the USD risks falling to 1.03/1.04.

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USD/CAD – While the USD fell to a marginal new low below the June low of 1.0784 earlier, the market appears unwilling to lean too heavily on USD/CAD at the moment. The 6 hour chart’s narrowing and falling range over the past week suggests a potential loss of downside momentum and warrants some attention but the more traditional oscillator trend strength signals – such as DMI – indicate a still deeply entrenched bear trend for the USD and we think that corrections are liable to remain very limited at the present time as a result. We still think that even modest USD rebounds are a selling opportunity and, with the market eking out even a marginal new low this morning, the underlying trend is your friend. We spot minor intraday resistance at 1.0830 but stronger selling interest should be seen between 1.0935/65. With the June low taken out, there is little notable support in the market now until the 1.03/1.041 area.