The Canadian Dollar (CAD) picked up a little ground in overnight trade on the news out of Washington DC but is currently trading close to the overnight low seen earlier against the big dollar and near yesterday’s session low, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD/CAD resistance develops around 1.3960

"The soft risk mood around the US government shutdown may be a drag on CAD sentiment although broader factors driving the CAD have shifted marginally more positively for the currency over the past few days. Our fair value estimate for funds has dropped back to 1.3695 this morning, driving the deviation from equilibrium back close to recent extremes (nearly 2 standard deviations)."

"That should firm up the ceiling for the USD around the 1.40 point in the short run at least, all else equal. Spot price action may have set a short -term top/reversal signal around the turn of the week, with net losses for the USD Monday (after Friday’s drop back from the intraday high) forming the third leg of a potential 'morning star' pattern."

"The lack of downside follow-through selling and the renewed bid for the USD today calls that pattern into question to some extent. It should, however mean firm USD resistance develops around 1.3960. Spot still needs to push below 1.3880 at least to reflect any real chance of a technical pick up in the CAD."