The USD/CAD pair initially tried to rally during the course of the day on Wednesday, but struggled above the 1.25 level yet again. By doing so, we ended up breaking down again, heading to the 1.24 region. The area just below and extending down to the 1.2350 level suggests quite a bit of support, but if we can break below there, it is going to present a nice selling opportunity. This is because we are currently forming a descending triangle, which of course is a very bearish sign.
However, we do not believe that this market will break down significantly from here, just simply down to the 1.20 level below, which is a massively supportive region. In fact, it extends all the way down to the 1.18 level, making it almost impossible to think that we are going to break down below there. Ultimately, we would love to see a break to that level, offering a nice selling opportunity for the short-term, and a nice buying opportunity from the long-term perspective down at the 1.20 handle.
Ultimately, we believe that the longer-term uptrend should continue, but the USD/CAD pair is certainly overbought at this point in time, as the Canadian dollar has been absolutely pummeled. Keep in mind that the Bank of Canada recently cut interest rates, which of course is very negative for the currency. This is why I believe that if we pullback, this market should continue to find it is offering value, and as a result people should come back into the marketplace and start buying the greenback.
If we broke above the down trending line, it’s very likely that this market will then head to the 1.30 level, which of course is where the currency pair stopped at the height of the financial crisis, so it’s difficult to imagine that the markets going to break out above there with any ease whatsoever. However, we believe that ultimately this market will break above there given enough time. We do of course think that it will be very choppy in the meantime.