The USD/CAD pair had a very bullish session on Friday as the oil markets fell hard. The Canadian dollar almost always travels with the oil markets over time, so many traders would have jumped out of their long CAD positions as the oil markets crumbled.
The weak jobs number out of the United States will have spooked people as well, as the demand for Canadian goods will possibly be hit because of the weak employment situation in the United States. As the US is the destination of 85% of Canada’s exports, it makes sense that a lot of the demand for Canada’s exports will wane if the biggest customer finds itself unemployed.
The move was impressive, but the parity level above is massively resistive. The 200 day exponential moving average is turning below it, and we have seen many attempts to get above the area turned away. The market has been range bound recently, and although we saw a very weak reaction overall in the markets, this pair has yet to breakout in any significant way. With this in mind, we feel that as traders we can only assume that the range still holds, no matter what kind of panic seems to be in the hearts of traders.
The massive resistance level does however give us a point of reference, and we see the parity level as a big “zone” that leads all the way up to the 1.01 level. The market hasn’t been able to breech it, so we are selling any weakness as it appears in market. The shorter term charts can be used as a signal in our opinion, as the range is so well defined. We prefer to use four hour and hourly charts when this kind of set up occurs.
The oil markets will continue to lead the way, and as that market looks like it is coming into a massive support area, we feel that the most likely direction for this pair is still down. Because of this we simply cannot buy this pair until we close well over the 1.01 level.
Written by FX Empire