The USD/CAD pair tried to rally during the session on Thursday, but as you can see the 1.1250 level offered far too much in the way of resistance. This made the market pulled back and form a shooting star, which of course is one of the more negative signs that you can see in the financial market. That being said, we don’t necessarily believe that selling this market is going to be the way to go. What we would rather see is some type of supportive candle below after a pullback in order to take advantage of what we would perceive as value.
The fact that we broke above the 1.12 level suggests to us that the market is eventually going to the 1.15 level, although it will take some time. With that in mind, we are simply waiting for the pullback in order to take advantage of perceived “value”, as the US dollar should continue to ascend against the Canadian dollar. After all, recently we have had members of the Bank of Canada suggest that interest-rate cuts are necessarily out of the realm of possibility in Ottawa, while the United States central bank has suggested that perhaps the short-term interest rate will reach the 1% level by the end of 2015. In other words, we have diverging central banks at the moment, which generally over the longer term will in fact decide the direction of a currency pair.
As the Canadian dollar pays a slightly higher interest rate than the United States dollar, the fact that the two are coming closer to each other should have the US dollar raising in value over time, and that’s exactly how were going to play this market: simply wait for supportive levels in order to turn things back around and start buying. We believe that ultimately this market does head to the 1.15 level over the next several months, but we could have a bit of choppy trading between here and there. Selling this market is something we are not interested in into we get below the 1.09 level, something that does look very likely at the moment.
