The USD/CAD pair went back and forth during the course of the day on Wednesday, testing the 1.20 level during the session. With that, we did pullback a little bit but it appears that any pullback will more than likely invite buying. It makes sense, because the trend is so strong but we are little overbought at this point. We would prefer to see some type of pullback in order to pick up value, but will have to take what we can get. If we break the top of the range for the session, that of course is a buying opportunity as well. Pullbacks with supportive candles are preferred, especially near the 1.18 handle.
Keep in mind that the oil markets are doing no favors for the Canadian dollar, and the way they are breaking down we could get sudden moves. That’s kind of the way this pair asked anyways, as the two economies are completely intertwined. Quite often, you will get sideways grinding followed by impulsive moves in one direction or the other. We have had one of those impulsive moves, so a bit of a grind in this area wouldn’t exactly be a surprise. We welcome pullbacks though, because those are without a doubt the easiest way to enter a market like this.
Keep in mind that the US dollar is by far the strongest currency in the Forex world right now, and as a result it’s difficult to go against it anyways. Looking forward, it’s very likely that this pair could go much higher, probably heading to the 1.25 handle given enough time. However, the market does tend to grind sideways for long periods of time, so it is likely that it will take quite a bit of momentum building in order to do that.
Below the 1.18 level, we see support at the 1.16 level and the 1.15 level as well. Because of this, we think that pullbacks will eventually offer a buying opportunity that we are looking for. If we break out above the top of the range, that’s a bullish sign as well but in a market that someone overextended that is a bit dangerous.