The USD/CAD pair fell initially during the session on Monday, but as you can see found the 1.10 level to be supportive enough to bounce significantly and form a hammer. This is the second hammer in a row, so that of course is a very positive sign as the market has previously been in somewhat of an uptrend. More importantly, we have recently seen consolidation, with the 1.10 level being the beginning of a significant amount of support extending all the way down to the 1.09 handle.
In fact, it’s not until we get below the 1.09 handle that we could possibly think about shorting this market now. It obviously looks very supportive, and as a result we simply will not sell until we are well below that level. In the meantime, even a pullback from here should be a nice buying opportunity as far as we can tell, and with that we are in somewhat of a “buy only mode.”
That being said, on a break of the top of the hammer, we believe that this market goes much higher. Probably to the top of the consolidation area somewhere near the 1.12 handle, which would keep in line with the recent trading action that we’ve seen. On top of that, you have to keep in mind that the nonfarm payroll numbers come out later this week, and this pair tends to be rather sensitive to them. With that, it would make sense that we would stay in the consolidation area and not make any type of sudden move in out of the previous range that we have been stuck in.
All things being equal, we expect this market to continue to consolidate, with the possibility of a breakout or break down after the Friday numbers, but until then is going to be very difficult to imagine the market doing anything of substance as the area has been so well-defined, and the pair tends to be so sensitive to these particular announcement. Because of this, we feel that this is one that you can only buy at this moment time, at least until after we see what the jobs numbers bring.
