The USD/CAD pair fell hard during the Friday session as the oil markets absolutely spiked in reaction to the European Union meeting and its announcement. The Canadian dollar has been following the oil markets even more closely than usual lately, and it is because of this that we think the pair could fall further. However, the $85 level needs to be overcome by the Light Sweet Crude markets in order to push this pair lower.
The Europeans providing a possible solution for backing bonds in Italy and Spain suggests that the world may want to seek “risk assets” in the near term, and the oil markets will certainly be part of that movement. The Non-Farm Payroll number is later this week, and this could also be a massive catalyst in this pair as well.
The candle from the Friday session is long, red, and brutal. This certainly suggests that the Dollar is going to be on the back foot, and if we manage to break below the Friday lows, this could send this pair looking for the parity level in short order. The downside could very well be capped by that level though. The area has been important several times, and should be so in the future.
However, if the parity level gives way – we could see a significant drop form there and down to the 0.97 level before it is all said and done. This would imply that a lot of good things will have happened in order for this to be, so we think that a drop that far is unlikely on the margin.
On the upside, there is a chance that we see a break of the 1.03 level – but this would be a massive reversal of fortune in this pair. If we get that far to the upside, this would have us seriously looking at buying and holding after the candle we saw for Friday. All things being equal, we expect to see this pair drop about 200 pips or so this coming week as the support level is all but gone.
Written by FX Empire