The USD/CAD pair broke down during the course of the day on Tuesday, slicing through the 1.20 handle. This is an area that has been massively supportive, and is also the 38.2% Fibonacci retracement from the entire move up during last year. With this, it appears that the market is trying to break down at this point, because the US dollar itself is starting to soften a little bit, as the US Dollar Index is sitting just above massive support at 94. With that, the US dollar is starting to show signs of weakness against certain currencies.
With interesting about this pair is that the oil markets are starting to support the Canadian dollar again. During the Tuesday session, the WTI Crude Oil markets broke above the $60.00 level, which of course is a very bullish sign. We have not broken out all the way to the upside and above the shooting star from a couple of days ago, but it does in fact look like the oil markets are starting to see quite a bit of buying pressure and with that we feel that the Canadian dollar will probably continue to get a bit of help from that particular market.
On the attached chart, there is the 200 day exponential moving average, which we touched during the day on Tuesday. If we can get below there, and perhaps even below the two hammers, we feel that the market will continue to go much lower. We think at that point in time the market will more than likely head to the 1.18 level next, and then possibly the 1.15 level.
What is so important about this market is the fact that it could be a bit of a harbinger on what’s going to happen with the US dollar. Because of this, if we break down in this market we could see the US dollar selling off in general. That could be the beginning of several different trading opportunities and trend changes in the Forex markets. Because of this, the USD/CAD pair suddenly looks to be one of the most important ones in the currency markets right now.