The USD/CAD pair has been one that has been very interesting lately, as we broke down below a significant support level in the form of the 0.99 handle. However, since then we have seen is somewhat tentative movement and we now have four candles that show very different meanings.
What is meant by this is the fact that formed to shooting stars originally, and then two hammers. This almost always means consolidation and confusion ahead. This makes sense; we are currently waiting on the United States Congress to come together with the United States president in order to make a decision on the so-called “fiscal cliff.” As long as that overhang remains in the marketplace, it is good be difficult for this particular pair to make any significant moves.
The main reason for this is that the two economies are so heavily intertwined. Canada since 85% of its exports to the United States, so what goes on in the United States deftly have an effect on what goes on in Canada. Simply put, the Canadians need a healthy United States in order to have a healthy economy themselves.
With that in mind, it’s no surprise that these two currencies simply cannot pick it direction with any great significance. Looking this chart is very easy to make the assumption that the 0.99 handle will hold as resistance, and we do believe that’s true. However, these two hammers do suggests that perhaps 0.98 is going to come into play as well, keeping us essentially stuck in a 100 pip range.
With the end of the year approaching, we figure that this market will move rapidly as the volume decreases if we get some type of agreement out of Washington DC. After all, if they wait long enough there will be anybody left due to the holidays, in this market could really take off in one direction or the other. Look for this market to gain if the Americans can get it together and agree on some type of financial package. However, if they do get it together, this market could fall far as “risk on” becomes the attitude of the markets again.
Written by FX Empire