The USD/CAD pair shot straight up on Monday as traders reacted to the poor GDP numbers out of Ottawa. The Canadians reported a GDP of -0.2% m/m, while the market was expecting a reading of 0.2%. This disappointment had a detrimental effect on the Loonie against most other currencies, and the US dollar was of course no different.
The recent action in this pair has been bearish, so this action will have been partly as a result of weaker hands being shaken out of their sell positions. The pair has remained firmly under the parity level, and the 200 day moving average is just above that mark. The oil markets have been slightly firm, although range bound lately, so this will have also influenced the lack of motion in this currency pair as well.
The 0.9850 level was the previous support level, and it should be noted that it is in this area that the market stopped on Monday’s rally. This could be significant, as the support levels will often be retested as resistance going forward. It is because of this that we caution buying at this point, as well as the fact that the trend is so bearish overall, but we feel that this pair could have a little farther to go to the upside if there is more negative news on the economic front globally.
Oil markets will have to be watched as usual, and this pair has a long history of reacting strongly to labor conditions in the United States, albeit in a negative correlation. The Dollar will weaken when job numbers are good in the US as it shows there will be more demand for Canadian exports. Conversely, this pair will rise when the situation in America deteriorates as their will be less buying of Canadian goods on the whole.
With this in mind, this pair could have a rocky week. We are selling candles that show weakness on the daily close, but only for short term trades. By the time Thursday rolls around, this pair will be waiting for the Non-Farm Payrolls number to come out.
Written by FX Empire