The US dollar initially fell against the Canadian dollar on Thursday, as we had seen on Wednesday, but found enough support near the 1.2825 level to turn things around and bounce significantly. As I record this, the market is breaking above the 1.29 level, but it also looks as if we are struggling a bit now. That being said, I think this is going to be very noisy and difficult market to trade, and therefore small position sizing will probably be necessary. However, if we were to break above the 1.30 level, that would be a very bullish sign and could send this market much higher. Alternately, I think at signs of exhaustion there will be sellers coming back into the market, perhaps trying to push USD/CAD down to the 1.28 handle.
There is always the correlation with oil that you should keep in mind, so pay attention to those markets. If they rally, this pair typically falls, and of course vice versa. I believe that over a long enough time horizon, we will continue to see the US dollar rallied against the Canadian dollar, but we need the oil markets the cool off a bit before that happens. I suspect we have a lot of things to work through, but with higher interest rates coming out of the United States, eventually that correlation comes back to the currency pair. Beyond that, there are concerns about the Canadian housing bubble.
Written by FX Empire