USD/CAD Forecast March 20, 2014, Technical Analysis

The USD/CAD pair rose during the session on Wednesday, breaking above the 1.12 level finally. This is an area that we have been talking about for some time now, suggesting that it was the resistance that needed to be broken to the upside in order to start buying this pair on a little bit longer time frame. The fact that we have seen that now does in fact have us interested in going long, and the fact that the Canadian dollar has been beaten up on for some time is not lost on us as well. With that, we believe that this market is going to continue going higher, and that the next true target is somewhere near the 1.15 level.

All things being equal, we believe that short-term pullback should offer value that traders will step in and support, and on top of that we believe that the momentum has now shifted to the upside, instead of the sideways markets that we have seen for so long. This pair does tend to do that though, go sideways for long periods of time and then shooting in one direction or the other, so this move really isn’t that big of a surprise.

This is predicated upon the Federal Reserve announcing that it believed the short-term interest rates would reach 1% by the end of next year, which was quite a bit higher than the market had anticipated. That being the case, there has been a repricing of the US dollar in general, and we believe that it will continue in the short-term. Combine that with the fact that a Bank of Canada governor said just the previous session that interest-rate cuts weren’t out of the realm of possibility, and you have a perfect recipe for this pair going higher. With that, we would be buyers of dips, or a buyer of the break of the highs from the session. Quite frankly, we are comfortable enough with this pair to just simply start buying now, although waiting for those two other signals would exactly be a bad idea.