By: Christopher Lewis
The USD/CAD pair quite strongly during the Monday session as the Dollar was hit on all fronts. The oil markets printed a nice hammer to suggest strength, and this in turn will always produce demand for the Canadian currency. The situation in the Persian Gulf continues to play into the psyche of traders in the oil pits, and this will in turn play havoc in this pair going forward.
The situation in the oil markets will have to be watched in order to understand how to trade it. The oil markets will of course be susceptible to shocks, and this could make this pair fall or rise rapidly. However, the overall situation in the Middle East is now being weighed against the lack of demand for oil that we will see coming out of Europe and China as they both slow down. Because of this, the pair could move quickly – but could just as easily find itself chopping around the current area.
The Technical Outlook
The oil markets will have to break above the $105 resistance line in the Light Sweet Crude contract if the USD/CAD pair is to gain serious traction to the downside. The oil markets will have broke serious resistance at that point, and could run all the way to $130 based upon a bullish flag. With that in mind, the Canadian dollar will not only rise against the US dollar, but probably all other currencies as well.
If this were to happen, there would be support areas to worry about on the way down in the form of 1.02, 1.01. parity, and 0.99 as well. It is because the zones are so close to each other that we are seeing such choppy conditions in this pair lately. Until we get some kind of resolution in the oil markets, this pair will have a hard time picking a direction. However, all things being equal, the US dollar will continue to be favored in general in the currency markets as there are plenty of concerns about the global economy and various other potential minefields out there.
.jpg "USD/CAD Daily 1/10/12")
The 1.02 level is the start of these supportive areas, and as a result I am looking for buying opportunities going forward – or at least until we break below the 0.99 level on a daily close. The one thing that leads me to believe that the pair could go sideways in the short term is that the most recent high was lower than the one before it. Meanwhile, we have seen the 1.01 refuse to budge. The next time we revisit the 1.01 level there is a really good chance that we could see another buy signal. I will be particularly interested in this pair at that level and willing to buy on a supportive candle.