The USD/CAD pair broke down during the course of the session on Tuesday, slicing through the 1.25 handle. In fact, we dipped all the way down to the 1.24 level by the time the day was over so it does look like we could have a little bit of an extension of the pullback. Nonetheless, this is a market that is most certainly in an uptrend so we are willing to wait on supportive candles in order to start going long. We believe that the market should continue the same action that we have seen over the longer term, but it perhaps is just a little bit overbought at this point in time.
The oil markets have balanced significantly recently, and that is part of what we are seeing in this particular currency pair right now. With that, we like the idea of buying those pullbacks because the US dollar is probably a bit over valued at this point in time. However, we do not think that the fundamentals have shifted it enough to think that the US dollar suddenly going to fall apart.
Even though the oil markets certainly look a little bit strong, the truth of the matter is that they are in such a massive downtrend that it’s hard to believe that the market will not struggle over the course of the next several sessions. With that being the case, we like the fact that this gives the uptrend in the US dollar, and the downtrend in the oil markets a little bit of room to build up momentum. Because of that, we think that it will simply bring in some of those who have missed the uptrend, and allow them to take part in what is such an obviously strong market. A lot of people will have felt they didn’t have an opportunity to get involved, so keep that in mind as it should bring in the support we need. On top of that, we see a massive amount of support near the 1.20 level, so we still could fall quite a bit from here and feel positive.