The USD/CAD pair skyrocketed during the session on Thursday as the “risk off” trade came back into the fray. The Canadian dollar is tied to the risk spectrum and highly sensitive to the price of oil, which fell hard during the session. The oil markets continue to be rocked by the problems in the EU, and the economic issues suggest that perhaps the world is going into a larger recession than originally thought.
The risk of contagion out of Europe has people buying US Treasuries and selling the commodity markets overall. The oil markets are still in the recent range, but did shed as much as $2 during the day. This pair looks like it has found massive support at the 1.01 level again, and at this point in time we think that this could be the start of a move higher, perhaps to the top of the recent range at the 1.07 mark. However, the 1.03 level is going to be resistive as well, and could cause a pullback in the process.
It is hard to imagine a scenario that the pair breaks below the 0.99 level, which is the absolute bottom of the support zone going down from the 1.01 level. The markets are far too jittery at the moment to think they will be willing to stick their collective necks out there like that and as a result we think that any move to the downside is extremely limited.
The oil markets will have to be watched, and the $95 level in the Light Sweet Crude contract is one place where we could see action that will lead this pair. If that level gives way – this pair will be running hard to the upside at that point. The $105 level in the Brent market will also be an area that Canadian dollar traders will be watching as well, and you should too. The markets certainly have plenty to worry about at the moment, and as a result we prefer to be on the long side of this pair as the Loonie looks vulnerable overall.
Written by FX Empire