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USD / CAD drops to three-month low as reflation trade picks up

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USD / CAD breaks late July low

I made the case for the USD / CAD shorts last week on the growing alignment between techniques and fundamentals and this continues to play out with today’s 84 pip drop to 1.2358.

Energy is once again dynamic with rising oil and gas prices. WTI hit $ 81.68 but fell to $ 80.85. Natural gas is up 3.5%.

Industrial metals are also back in fashion, with copper prices now testing their late July high. This is a sign that the broader reflation trade is unfolding. This reflects both the inflationary push and the continuing signs that the most recent wave of covid may be the last. Or at least the final big wave.

USD / CAD drops to three-month low as reflation trade picks up

With the return of stocks, the only place that could derail sentiment is in bonds. Yields have retreated this week and this needs to be watched closely.

On the bright side, if China provides stimulus – which I think is ahead – then the rally in commodities could really pick up.

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