The USD/CAD pair rose quite a bit during the session on Friday, only to turn back around as the rumors of a bailout flew around the markets worldwide. The “hopium” trade seems to be back on the table, and the oil markets bounced as a result. This in turn pushed the value of the Loonie up, and this pair down.
The area that the pair currently sits at is significant support, but in reality a lot of what is going to drive this pair won’t be coming out of Canada or the United States. Instead, it will come out of either Spain or China. The Spanish are rumored to be ready to ask for help over the weekend, and the banks in that country are supposedly going to be recapitalized by the IMF or some European mechanism. However, we all know that there have been rumors of a bailout mechanism of one kind or another in Europe for two years. The fact that the Loonie rallied late in the session could be a short covering rally (of the Canadian dollar) or possibly just people buying into the rumors. However, the Europeans have a history of disappointing the markets, and we think this is highly probable this time as well.
The Chinese are releasing a lot of economic numbers over the weekend, and the Chinese even cut rates earlier this week. Some people see this as a pre-emptive strike because of the bad news coming. While we do not know about that obviously, there is a question as to whether or not the market has “priced in” whatever bad news could be coming from China. On the other hand, the Chinese have the power to simply make up their numbers – so only so much can be gleaned from these announcements.
Because of this, we are paying a lot of attention to the headlines this weekend, and will be following the oil markets next week. The opening will be very important, and we think that the end of the week could see a risk off mode as we get close to the Greek elections. Because of this, we still have a buy side bias in this market, and will look for supportive candles to buy form at each handle down to the parity level.
Written by FX Empire