USD/CAD fell on Thursday, and even managed to poke through the bottom of the massive symmetrical triangle that we have been watching lately. The breech of the uptrend line was significant, but even more important was the fact that the price managed to bounce back above it to form a hammer on the day.
The 1.01 level is massive support going all the way down to the 0.99 level, and as such we stated that we would be very leery of any breakdown under this triangle. By the end of the day, we have seen quite a rally to end up fairly unchanged. This shows that the support is holding, and that it will be massive in scope.
The oil markets had a bit of a back and forth day, and ended up lower – spurring selling of the Canadian dollar. The oil markets will be key going forward, but the Iranian situation with the Gulf of Hormuz could be a major factor in this pair. The Dollar of course will continue to get a boost in times of uncertainty, and there is plenty of that to go around at the moment as you undoubtedly have noticed.
The buying of this pair is probably the trade, but we need to see the market break above the top of the Thursday range as it shows a complete rout of the bears in this pair. The move could be explosive, but we are more willing to bet that the return upwards will only be more consolidation in the triangle. However, we often see these false breakdowns before a big move up. With this in mind, we would be willing to buy that position, but take half off the table as we get towards the top of the triangle. If we break through – then good….we already have half of a position gaining traction.
As far as selling, we aren’t as enthused because of the Dollar being the safety trade, and the fact that the support looks so healthy. However, if the 0.99 level gives way on a daily close, we would have to throw in the towel and go short.
Written by FX Empire