The USD/CAD pair rose during the session after initially falling on Tuesday in order to press upon the 0.98 handle. However, towards the end of the day we saw a little bit of a pullback as it in order to close right around the handle. This suggests that we have a real fight on our hands of the 0.98 level, and over the last five bars we do have to shooting stars and to hammers. This means that certainly some type of tension is building up, and now we need to figure out which direction it is pointing in.
Right now, looking at the chart we have to admit that the trend is decidedly to the downside, but the last couple of sessions have been rather bullish. We do see quite a bit of resistance all the way to the 0.9950 level however, and as such we are ready to start buying. In fact, we actually are hoping to see some type of breakdown in order to start selling again as it is with the overall trend.
Remember that the 0.98 level was the bottom of a massive consolidation area that extends all the way to the 1.04 level. This means that a break down that we saw a recently could imply a move all the way down to 0.92 before it’s all said and done. In this type of environment, we definitely think that the risk to the downside is much greater than the upside. Granted, we could have a rally but the truth is that it’s going to be much easier to fall than it will be to gain.
The oil markets will certainly have a great influence on this currency pair, and at the moment they do look very vulnerable. However, if they are sitting at a pretty significant support level, so it should be interesting to see how this plays out. We think that there are a lot of headline risks out there in the oil markets that could push prices higher, so we could literally be one headline away from the oil markets spiking yet again. If that happens, we certainly believe that the Canadian dollar will benefit. On a break of the lows from the Tuesday session, we would start selling this pair yet again. As mentioned previously, we would have to see a close above the 0.9950 level in order to start buying this pair as it would more than likely attempt to reach the top of the previous consolidation level which of course means that we could be heading to levels as high as the 1.04 handle.
Written by FX Empire