The USD/CAD pair broke down during the session on Tuesday, testing the 1.20 support level. This is an area that is rather supportive, so it could take a bit of a fight to break down below here. However, it should be noted that the oil markets broke out to the upside during the session, which of course should help the Canadian dollar in general. Because of this, we are very cautious about taking any long position at this point in time, but recognize that a break down below the hammer from Wednesday of last week would be a nice selling opportunity. At that point in time, we would anticipate that this market would then head to the 1.18 level at the very least.
We recognize that this area could of course attract buyers though, so we are certainly cautious and will most certainly wait until we get a daily close telling us to start going long. We believe that the market will be volatile no matter what happens, but quite frankly it is a very difficult to imagine that the US dollar is going to skyrocket above the Canadian dollar if oil continues to rise. With that, this could be a little bit of an opportunity as the market failed again just below the 1.30 level. From a longer-term perspective, you have to look at the 1.30 level as massively resistive because the financial crisis since this pair going all the way to that level, only to be turned back around several times. If they can withstand that type of pressure, one would have to think that there must be a significant amount of selling orders in that general vicinity.
While we have been bullish of this market recently, we really feel like we’re hanging on the precipice right now, and it’s very likely that the breakdown could send this pair going much lower. In fact, it could be a bit of a longer-term signal as well. Stay tuned, we believe this is one of the markets to pay attention to right now.