The USD/CAD pair fell hard during the session on Thursday, testing the bottom of the hammer that had originally caused this market to bounce. We find interesting about this pair is that the US dollar was beat up a little bit during the session in general, and the oil markets look more and more likely to break out to the upside. With that in mind, it should send money into Canada, which of course would continue to drive this pair lower.
The 1.20 level below is a massive large round number, and we anticipate seeing quite a bit of support there. Quite frankly, if we can break down below the bottom of the hammer from last week, we feel that this market will then head to that area without too many issues. Also, if the oil markets break out to the upside we believe that you could see that same move in reaction. This is definitely in oil related market, and it’s in oil related move. The reason we can tell that as that the Norwegian krone is starting to show signs of strength as well, and apart from oil Canada and Norway have very little in common when it comes to the Forex markets.
We believe that rallies at this point time will more than likely be sold off, and with that we remain bearish but recognize that a move back above the 1.24 level would be very bullish. Longer-term, we think that this pair could very easily go higher but the oil markets could continue to drive a bit of bullishness for the Canadian dollar itself. We will have to keep an eye on oil markets in the US dollar in general to see where this market goes next.
Ultimately, we recognize that the 1.30 level above is the area that kept the pair lower at the height of the financial crisis, and understand that it will take quite a bit of momentum to break out. With this, it makes sense that we will try and trade again. With that, we do think that the market has the possible momentum to do that longer-term, but we will obviously have a lot of volatility between now and then, and pullbacks like this could happen from time to time.