The USD/CAD pair broke down significantly during the early part of the trading session on Monday, breaking below the 1.25 handle. The 1.25 level of course is a significant round number, and of course will attract a lot of attention. However, when I look at the longer-term chart it’s obvious that there is a significant support level near the 1.24 level based on longer-term uptrend lines. I believe that the 1.25 level will create a bit of a reaction, but as the Canadian dollar continues to strengthen, and more importantly the US dollar continues to lose value, I think this market will continue to drop. Rallies are to be sold, least until we can break will above the 1.26 handle, something that I don’t think’s going to happen.
The role of crude oil
The role of crude oil should not be ignored, but right now it seems as if the market is paying more attention to the bond markets than anything else. The bond markets continue to favor Canadian bonds, and there by extension, favor the Canadian dollar. I believe that the 1.24 level will be much more important note, due to the longer-term uptrend. If we break down below the 1.24 level, this could begin a massive selloff in this currency pair. Alternately, a break above the 1.26 level is a very bullish sign and could send this market looking to the 1.28 level above which was previously supportive. It obviously will attract a lot of attention, and therefore I think that we would have to reset where we expect this market to go next. Ultimately, I think that you can count on volatility but the overall attitude of Forex traders favor selling the US dollar in general, and the Canadian dollar shouldn’t be any different.
Written by FX Empire