In opinion of FX Strategists at Scotiabank, some signs of exhaustion appear to have emerged following the recent bull run.

Key Quotes

“The outlook for relative central bank policy is set to dominate this week as market participants look to Wednesday’s Fed meeting and adjust their expectations for tightening in 2018. Domestically, rate expectations are stabilizing in the aftermath of last week’s trade tensions and speech from Gov. Poloz. OIS are now pricing roughly 7bpts of BoC tightening for April and 23bpts by July, and the 2Y U.S.-Canada spread is testing fresh 9-month highs just below 55bpts. Risk reversals are elevated, and pricing a sizeable premium for protection against CAD weakness. Domestic risk is limited ahead of Thursday’s public appearance from BoC Sr. Dep. Gov. Wilkins and Friday’s CPI/retail sales data. CAD remains vulnerable to near-term weakness however we maintain a constructive medium-term view, looking to CAD strength into the spring/summer period”.

“Trend and momentum indicators are bullish however we are seeing some signs of exhaustion and specifically highlight the negative divergence in the RSI—not confirming the latest highs in spot. Shorter-term charts are showing signs of a decisive turn from resistance in the 1.3120 area, and we continue to highlight the importance of the 61.8% retracement of the May-Sept 2017 decline at 1.3132. Near-term support appears limited between 1.3050 and 1.2950”.