By: Christopher Lewis
USD/CAD can sometimes be a tricky pair to trade. While most of you probably understand that the oil markets can create motion in this market due to the Canadians exporting so much of it, there are many other factors at play often as well.
Besides the obvious interest rate plays and the like, the pair has the odd relationship of being two currencies representing two economies that are massively interlinked. While the Canadians enjoy being an exporter of oil, wood, gold, and many other resources, the Americans buy 80% of that “stuff” from their neighbors up north. With that in mind, quite often a weak US economy will eventually hurt the Canadian dollar as their #1 customer sudden has little spending cash.
The pair has been very difficult to trade lately, and this could be due to several reasons. The Iranians and the games being played in the Gulf lately come to mind right away. After all, if there is a closing of the Strait of Hormuz, this could certainly have a detrimental effect on the global oil supply, therefore driving the value of oil up, which in turn would drive up the value of the Canadian dollar. At the same time, the US economy is one of the few that are growing out of the biggest, and this is also good for the Loonie as well.
However, there is a lot of tension around the world. This almost always inflates the value of the Dollar as traders look to buy things like US Treasury notes, of which we are seeing very low rates in. The demand is amazing to be honest, and with all of the uncertainty out there, the trend is likely to continue. This puts in a bid for the Dollar over time. Because of this, the pair cannot move.
This Could Change Soon
Looking at the charts though, it appears we are approaching the “breakout point” of a massive symmetrical triangle. The triangle will more than likely have to break out over the next several days in order to satisfy the technical rules. Of note, there is also a massive resistance area from 1.01 to 0.99 just below. Because of this, I feel the path of least resistance is actually up in this market. However, I learned a long time ago not to “anticipate” a move – it leads to losses.
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A break of the downtrend line at the top of this triangle has me long with a daily close over it. A daily close below 0.99 is necessary for me to feel comfortable shorting this pair. While there may or may not be a trade today in this pair – the move is coming. This pair will often wind up like this, and then make sudden moves. If you are payi8ng attention, they are often obvious.