USDCAD Shooting Star Threatens September Surge as Yields Take Center Stage
USD/CAD has been on an incredible bullish run in September, surging more than five full big figures. However, after failing to sustain a push above resistance at 1.4248 on Thursday, the currency pair printed a clear bearish reversal pattern.
The extreme rise in front-end US Treasury yields was undeniably a factor behind USD/CAD's outperformance against most G10 FX names in September. With correlations with short-term Treasury yields ranging from +0.82 to +0.90 over the past week, it's clear that the US interest rate outlook has been driving the pair higher.
The ATR 50 stretch indicator is at historically extreme levels, sitting in the 97th percentile of all observations since April 2013. However, looking at previous episodes when USD/CAD reached similar levels of extension, there was no clear or consistent pattern in price action over the following five, 20, or 60 sessions.
Friday's US non-farm payrolls report is now a crucial factor in determining whether the reversal signal sticks. If it does, the first downside area of note is a support zone comprising the 23.6% Fibonacci retracement of the 2021 to 2025 low-high and horizontal support at 1.4127.