The USD/CAD currency pair attempted to rally during the session on Wednesday, but ran into significant resistance at the 1.0050 level. It is because of this that we are starting to suspect that the breakout is a false one, not to mention the fact that the candle formed for the Wednesday session is a picture-perfect shooting star.
Because of this, we believe that a break down below the lows from the session on Wednesday should send this pair much lower. That low happens to coincide with the parity level, and as a result we think it sets up quite nicely for a short seller’s trade.
If we can break down through the parity level, we suspect that we could go as low as 0.98 or so as we attempt to reenter the previous consolidation area. That action was pretty significant and fairly reliable, so this will be good news for range bound traders as well.
Obviously, there is the possibility that we go much higher on some type of wicked move, and a break above the top of the Wednesday shooting star would be a very strong signal. However, we know that the overall trend is down in this pair, and there’s really not a whole lot going on over the last 48 hours that suggests that this is about the change. In the last two days, we have seen a significant weakening of what was once a very powerful bullish move. Because of this, it looks to us that we may see lower pricing soon.
We think the 0.9950 level will offer a bit of support, but in the end it is only a minor level. The oil markets should continue to give a boost for the Canadian dollar as well, as they are all showing serious strength. In fact, we believe that the weak US dollar is a main driver of oil prices at the moment. This would only make sense if we continue to see weakness in this pair, as the weakened US dollar is shunned for higher-yielding currencies such as the Loonie.
Written by FX Empire