The USD/CAD pair initially fell during the session on Monday, but as you can see turned back and formed a massive hammer. This hammer sits just below the 1.10 level, and if we can get above that level we feel that this market suddenly becomes a “buy-and-hold” type of situation as we should then head to the 1.12 level and then much higher. We like this market, and we will buy a break out above that level, as well as buying supportive looking candles on pullbacks. We have no interest whatsoever in selling this market, as there has been such a strong will higher and that the trend certainly has changed for the positive.
On top of everything else, the oil markets continue to work against the value of the Canadian dollar, which while not as strongly influenced by oil against the US dollar as it once was, still has an effect. After all, the Americans are starting to produce more and more of their own energy, so of course the correlation is starting to get a bit soft.
Ultimately, we believe that this market is in a longer-term uptrend, but will offer plenty of buying opportunities when we pullback from time to time. After all, this market does tend to chop around quite a bit, as the two economies are so intertwined. This is a much like the EUR/GBP pair, one that tends to find trends for long periods of time, but then will suddenly move in one direction or the other with quite a bit of force.
Even if the market does fall significantly, it is not until we get below the uptrend line that is marked on this chart that we would even begin to think about selling this market as the uptrend line has been so strong and supportive over the last several months. Quite frankly, we look at that point in time as the market that offers quite a bit of value as the US dollar should continue to strengthen overall. Do not forget, the US Dollar Index broke out recently, and as a result we expect to see continued US dollar strength overall.