The USD/CAD currency pair initially rose during the session on Monday, but failed to keep its gains and formed a shooting star as a result. This shooting star is just above the 0.99 level, an area that we suggested was very supportive.
Because of this, it looks like we will attempt to break down and through the 0.99, and because of that we could see a significant selling opportunity.
We see the 0.9975 level as the very bottom of support, and a move below that would have us aggressively shorting this market, as this would be a continuation of the longer-term trend. Most of the time, this market coincides with what’s going on in the oil markets, and as oil rises, this pair will fall because of Canadian dollar strength. We think that the two must work in concert at this point time, and unless they do we would be very suspicious.
Alternately, if we managed to break the top of the shooting star this would be a bullish signal. However, we still feel that we need to get above the 1.0050 level in order to be overly bullish of this pair, and do see a potential move back to the 1.04 handle. With all things being equal, the trend is down and we would be more comfortable selling this pair, but with all of the headline risks out there currently it is difficult to be short of the US dollar for any length of time.
If we do break down, we think that this market will more than likely head back towards the lows that we saw back in September. This would have the market aiming for roughly 0.96, and perhaps beyond. This would be based upon either strong oil markets, or some type of “risk on” rally. We think that the “risk on” rally could be a possibility, but only if US lawmakers decide to work together on the fiscal problems that the United States is currently trying to get a grasp on. So far, there seems to be no real desire of both parties to work together, but as we get closer to the end of the year the possibility of a “kick the can down the road” type of solution grow.
Written by FX Empire