The USD/CAD pair fell rather significantly during the day on Thursday, breaking well below the 1.43 level at one point. We believe that there is still a way to go to the downside, but we also recognize that this market is in a strong uptrend for plenty of reasons, not the least of which is the horribly bearish market in the crude oil commodity. We believe that the downtrend will continue in that market, thereby making this uptrend continue much higher. We are simply looking for some type of supportive candle between here and the 1.40 level below as we see it as a bit of a “floor” at the moment. True, we did get comments out Ottawa suggesting that perhaps the Canadian economy was doing fairly well despite with going on in the crude oil markets, but at this point in time that can only be true for so long. On top of that, you have to keep in mind that Forex traders tend to use the Canadian dollar as a proxy for crude oil in general, meaning that by simple habit they will continue to short the Loonie going forward.
Again, looking for supportive candle below is exactly how we want to play this market, and we believe that this market will eventually make higher highs, and aim for the 1.50 level. This has been a rather strong uptrend recently, and as a result it is not surprising at all to see some type of pullback. After all, that is quite healthy because market can go in one direction forever. Because of this, we are to simply ignoring any type of selling opportunity as we look at pullbacks like this as value in the US dollar, which is something that we think the rest the market will do as well.
Not only do we think that the 1.40 level is supportive, we also believe that there is support all the way down to the 1.38 level below there. Essentially, this makes up for a support zone that is going to be difficult to break down through.