The USD/CAD pair shot straight up during the session on Wednesday after the Bank of Canada it a let it be known that interest rates would be on hold longer than expected during their interest rate announcement. As most of the market would have expected the Canadians to hike interest rates quicker than most other central banks, this caught the market on the wrong foot. With that being the case, the Canadian dollar sold off drastically.
The pair broke above the parity level at one point, but found quite a bit of resistance at that area. It is the next 50 pips that will be the most difficult for buyers to gain. If we do manage to get above the 1.0050 level, we could see real momentum shift to the upside in this market. Because of this, this pair is on our radar, but we are not involved right now.
Looking at this chart, if we can get above the 1.0050 level, we should see a move towards 1.05 over the longer term. Will we find interesting about this chart is that while the oil markets have been writing higher, the Canadian dollar has been losing value. This was especially interesting during the Wednesday session as the Bank of Canada suggested dance the economy was weakening, not strengthening. Conventional wisdom is that when petroleum sales are strong, so is the Canadian economy.
If that’s the case, then why is oil going higher? More importantly, why is the Canadian dollar for failing to gain traction? With the Bank of Japan it is announcement, it appears that we have our answer finally. Because of this, we think this pair: continue higher and do believe that the action that we saw on Wednesday could be a sign of things to come. We certainly aren’t ready to start shoring this pair now as we broke above a shooting star from Tuesday, and a very neutral range from Monday. This also continues the big move on Friday, and as such we think momentum is almost exclusively on the side of the US dollar in this pair right now.
Written by FX Empire