- The USD/CAD initially tried to rally during the trading session on Tuesday but gave back gains to show signs of exhaustion.
- By doing so, it ended up forming a bit of a shooting star, at the same general vicinity it topped out at previously. As you can see on the chart I have included, there is a bullish flag drawn.
- This is one of my favorite patterns, because if we break above the top of the shooting star from the Tuesday session, it becomes an extraordinarily bullish sign. Not only are you breaking above the range of that day that got repudiated, but you are now kicking off the bullish flag as well.
If we were to get the bullish flag working, that could open a move all the way to the 1.45 region, which obviously is a large, round, psychologically significant figure. That doesn’t mean that we get there overnight, and it doesn’t mean that it happens in a smooth manner. However, that is the “measured move” of the flag.
Eyes on the Federal Reserve
Underneath, the 1.35 level continues to be supported, as it is a large, round, psychologically significant figure and of course an area where we had seen buyers at previously. It is not until we break down below there that I would consider this a much more relevant pullback. At that point, then we could go looking to the 50-Day EMA underneath, which is currently near the 1.3350 level. The 50-Day EMA is also rallying quite significantly, and I think it will offer a lot of dynamic support.
I do not have any interest in trying to get too cute this market, and I do think that a pullback more likely than not will offer a buying opportunity. I recognize that the crude oil market has been somewhat bullish as of late, and that could help the Canadian dollar overall, but it’s also worth noting that the Greater Toronto Area has started to see the housing market bubble pop, and therefore the Canadian economy is a bit of a drag on the currency will, despite what crude oil may or may not be doing over the longer term. In general, this is all about the Federal Reserve and whether they are going to remain tight with their monetary policy.
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