The USD/CAD pair broke down rather significantly over the course of the last couple of months, and on Wednesday formed a shooting star. What’s interesting about the shooting started is that it is right where you would want to see it if you were a seller. The 1.22 region begins an area of resistance, and the fact that we formed a shooting star right there of course has us thinking that perhaps this market is ready to fall again. On top of that, the 100 day exponential moving average is right there as well, so quite frankly we think that longer-term traders might be looking to sell in this general vicinity.
We don’t necessarily think that a meltdown would happen even if we broke down below the bottom of the shooting star which is extensively the 1.22 handle, just that we would more than likely head back down towards the 1.20 region, perhaps even as low as the 1.19 handle. We believe that the market continues to have quite a bit of weight upon it, and that the oil markets look as if they may be finding a bit of support. That of course typically is good for the Canadian dollar, and as a result it would not be a surprise to see the oil markets go higher, while this particular currency pair goes lower.
We don’t really have any interest in buying until we get above the 1.23 level, but at this point in time we don’t think it’s going to be easy for the market to do that. We would recognize that going higher from here would have a lot of volatility involved, and as a result it would not be the trade that most traders would want to take even if they were given the opportunity. We could very well ultimately do that, but at this point in time it does look like a pullbacks coming so expect short-term traders to take advantage of perceived resistance above that perhaps long-term traders are providing. Remember, watch the oil markets in tandem.