The US dollar went sideways against the Canadian dollar initially during the Friday session, but as the jobs numbers came out for both countries, this created a bit of a vacuum in this currency pair. The US jobs number was reasonably strong, and a bit better than anticipated. However, the Canadians offered a number that was 5 times what was expected, so obviously traders favored the Canadian dollar which already had strengthened over the last couple of weeks. Currently, there is a bond trade that favors selling the US treasury bonds, while buying Canadian treasury bonds. This continues to cause a lot of noise in this currency pair, and I think it will be a major theme.
Keep in mind that the oil markets could have an effect on this pair as well, but currently it seems like the bond traders are running the show. Traders believe that the Bank of Canada will have to raise interest rates much more aggressively than previously thought, so that of course favors a lower currency rate. I think that the 1.30 level above is a massive ceiling in the market, so if we were to somehow bounce above there, then I would have to reevaluate everything. In the meantime, looks as if short-term rallies will be selling opportunities at the first signs of exhaustion as the next major support level below is the 1.28 handle, and we are closing the day at the very lows of the range. That is indeed a very negative sign, and typically leads to continuation of the impulsive move to the downside. I’m looking to the not only short rallies, but add to fresh, new lows as it would show a continuation of the strength that the CAD has been showing.
Written by FX Empire