The USD/CAD pair initially fell during the session on Monday, but found support at the exact same place that we have several times in a row. On top of that, there is an uptrend line that the longer-term market has been following, and as a result we believe that this market could break out to the upside at this point. A move above the 1.07 level would in fact be a massively bullish sign, and as a result we expect this market to make that move, and once it does we will in fact start buying this pair. We recognize that it could be a bit choppy on the way out to the 1.08 handle, but ultimately if we can get above there, this market could go as high as 1.09 over the next several weeks.
On the other hand, if we break down below the 1.06 handle, it is possible that this pair falls all the way down to the parity level given enough time. This market of course is often influenced by the oil markets, and they do in fact a look like they are a bit on the weak side right now, and that can strengthen the US dollar.
However, you should keep in mind that the main correlation between oil and this market have essentially broken down recently, so it is possible that the USD/CAD pair may completely ignore what goes on in the light sweet crude market. If that’s the case, then the market may serve paying attention to the possibility of the Federal Reserve tapering off of quantitative easing even farther. If that’s the case, the market should continue to go higher based upon interest-rate differential. This market tends to grind sideways for significant amount of time, and then ultimately shooting impulsively and one direction or the other. At this moment in time though, we still have an uptrend being observed and honored. Because of this, we are only interested in buying at this point, and will ignore sell signals until we break below the 1.06 level on a daily candle.
