The USD/CAD pair went sideways initially during the day on Friday, but continues to find support at the 1.32 level. That being the case, the market looks as if it’s ready to break out to the upside, as we slammed into the 1.33 handle. If we can break above the 1.3340 level, I feel that the market should continue to go much higher, and that is my base case scenario. After all, the oil markets continue to struggle and that tends to work against the Canadian dollar longer term. Once we break out to the upside, I feel that the market goes to the 1.34 handle, and then eventually the 1.35 level. Ultimately, the market is used as a proxy for the oil markets, so with that being the case it makes sense that the market rallies as we see so much bearish pressure on crude.
As I have recently been going to Ontario, it’s difficult not to notice the fact that Canadian housing has overheated, especially in the Toronto metropolitan area. This will continue to be a serious concern for traders of the Canadian dollar, as the markets look likely to punish the CAD for that. Having said that, we are starting to hear grumblings out of the Bank of Canada about the possible hawkish nature of future meetings. My suspicion is that it is a bit of a bluff though, and therefore it’s likely that the market is going to continue to favor the US dollar, as it is a known quantity that the Federal Reserve is going to continue to raise interest rates. Because of this, I favor a move towards the 1.35 level above. Selling isn’t a thought until we break down below the 1.32 handle.
Written by FX Empire