The USD/CAD pair initially tried to rally during the session on Monday, but fell short as we fell off again and formed a shooting star. This shooting star does in fact suggest that we will see continuation to the downside, but we are sitting above the 0.98 handle which of course is massive support.
The shape of the candle was just about as perfect as you can ask for, but we are still 35 pips or so above where we need to be in order to break down. With that being said, we see quite a bit of resistance above, and this is most obvious add 0.99 and parity. Because of this, we will not buy this pair, and simply look to sell it on rallies or a break down below the all-important 0.98 level.
Oil markets will have to be watched if you plan on trading this currency pair. Typically, oil does tend to push the Canadian dollar higher as it rises. In other words, this pair becomes inverse of the Light Sweet Crude chart, or the Brent chart. Both of those markets presently are pressing up against significant resistance, and as a result we think that the breakout and oil could come, follow very shortly by the Canadian dollar gained serious strength.
One of the most unique things about this currency pair and its relation to oil is the fact that one will often lead the other. Unlike the relationship between gold in the Australian dollar, this isn’t always an instant move. It’s not rare at all to see the Canadian dollar strengthen a day before the oil markets, or vice versa. Because of this, we highly recommend that you pay attention to all three charts if you are going to be involved.
With all that being said, if we managed to break down below the 0.98 handle, we do believe that the 0.95 level will be tested eventually. Be aware the fact that this pair tends to grind for quite some time and then suddenly move in one direction. That could be the case with this move, and as such you may find yourself at the target much quicker than you anticipated.
Written by FX Empire