The USD/CAD pair fell during the session on Tuesday, but managed to bounce in order to form a fairly impressive hammer just below the 0.99 level. The hammer does suggest for the second time within the last two weeks that the 0.9850 area or so is going to be supportive. Because of this, we think that a bounce is more than likely, and looking at the larger time frames we can see that the 0.98 level is the bottom of a larger consolidated area that goes all the way up to 1.04 or so.
The oil markets will have to be watched as usual, as the light sweet crude contract often will influence the Canadian dollar on the whole. That market has been relatively stagnant over the last several days, and is approaching resistance. This of course would put downward pressure on the Canadian dollar, which is inversely shown on this chart meaning that we would see this chart rise.
We think that it could be a bumpy ride all the way back up towards the top, but if there is any hint that quantitative easing isn’t coming out of the Federal Reserve anytime soon, there’s a real chance this pair would spike in value. We are necessarily thinking that this surge in price will be something massive, rather a slow grind higher as the world continues to try and figure out which direction the money is flowing in North America.
Both economies are very intertwined, and this of course makes this pair relatively choppy. This is much like the Euro versus Pound currency pair as both of those economies are very intertwined as well. Both currency pairs tend to grind it most of the time, but will see massive shocks in one direction or the other. This pair is actually very notorious for that as we will do very little for weeks on end, and then suddenly see a 300 pips surge.
If we manage to break down below than 0.97 handle, we think that the bottom will have fallen out in this currency pair, and we could see a massive move lower. However, in order for that to happen we would have to see a serious strength in the oil markets, something that is very unlikely to come to pass.
Written by FX Empire