The USD/CAD pair broke down during the session on Wednesday, breaking the bottom of the shooting star that was formed on Tuesday. This move makes sense, as the pair has been far too overbought after the breakout at the 1.01 handle. However, we do see the opportunity of taking this pair of on the “cheap.” Thinking of the pair this way, it makes sense that we pull back to the 1.01 handle as it should be tested as support going forward. After all, one of the most basic tenets of technical analysis is “what was once the ceiling becomes the floor, and vice versa.”
As the light sweet crude markets got a little bit of a boost during the session on Wednesday, it makes sense that the Canadian dollar gained. Also, this could just simply be a little bit of a relief rally as well, and as a result if you are a short-term trader, we believe there is a little bit of money to be made on the downside. However, we tend to try and trade with the larger move, and we feel that is off at this point in time.
Looking at this chart, we can make a strong case for support 1.01, and as long as it holds we feel this market will eventually attempt to get the 1.04 level. We will buy supportive candles down at the 1.01 handle, and above at places that make sense such as large round numbers.
Alternately, if we managed to break the top of the shooting star from Tuesday, this would be a very bullish sign as well. We feel that the Canadian economy may not be doing quite as well as people think, as the US economy is somewhat sluggish. After all, I wasn’t that long ago that the Bank of Canada suggested that any monetary tightening was further away than originally anticipated. Because of this, there has been a serious lackluster performance by the Loonie over the last couple of weeks. Going forward, we think that will continue to weigh upon the Canadian dollar against many currencies, although the US dollar may not be the strongest trade against the Canadian dollar.
Written by FX Empire