The USD/CAD pair initially fell during the session on Tuesday, dipping well below the 1.25 handle. However, we found enough support below to turn things back around and form a nice-looking hammer. The hammer of course is a very positive sign but when you look at the overall chart, you cannot help but notice that there is a significant descending triangle. That of course is bearish overall, and with that we have to recognize that there is a significant amount of downward pressure trying to build in this pair.
What is interesting is that the Bank of Canada has an interest rate announcement coming out today, and that of course can have an effect on this particular market. With that, we feel that this marketplace might be the place to be today. After all, there is a significant amount of support at the 1.2350 level, and if we break down below there the market could very easily drop down to the massive support zone at the 1.20 handle. With that, the market would more than likely find quite a bit of support, and buying pressure.
In the big scheme of things however, we do not think that this market going to break down. In fact we welcome a move back down to the 1.20 level as it is a representation of value and a significant pullback of a nice uptrend. In fact, we believe that this market is a little overbought at this point, so quite frankly we are hoping to see this move. On the other hand though, we could always break to the upside which means if we can break above the top of the downtrend line in this descending triangle, we think at that point in time the market will then head to the 1.30 level over the longer term. Because of this, we believe that there is a possibility of either move, but we do not want to sell. We are simply waiting to see if we buy above the top of the descending triangle or if we buy back down at the 1.20 handle.