By: Christopher Lewis
The USD/CAD pair has a tendency to chop around sideways for a significant amount of time, only to suddenly break in one direction or another in a violent manner. A lot of this can be attributed to the interconnectivity of the two economies, as the Canadians send over 85% of their exports into the United States. Simply put, as the United States goes, so goes Canada. If their biggest customer is suddenly in financial trouble, this can often make the pair behave in a counterintuitive way – making the Dollar rise as the United States fairs poorly.
I know plenty of traders that simply don’t trade this pair because of the actions that will often occur in the market. Traders get frustrated by the sideways moves and sudden gains or losses only to be followed long periods of nothing in the terms of a move. However, this pair can be traded quite easily if you are willing to step back and look at the big picture – in other words, pay attention to the higher time frames.
Parity still holds
The parity level has held as resistance yet again. The 200 day EMA is just above that level, so it makes complete sense that the pair is going to struggle to make it above that mark. Adding to that problem is the resistance level extending all the way to the 1.01 handle. This area is massive in its importance, and has held time and time again over the last couple of months. With this in mind, the pair is a sell, even if it is only for the short-term.
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Adding to the downward pressure on this market is the recent statements by the Federal Reserve Chairman Ben Bernanke stating that the rate in the United States will have to be kept low as long as possible. This of course was Dollar bearish, but this pair is also moved by oil markets – and those are very resilient at this point. The support level at the 0.97 level is the extreme bottom, and if that gives way – the rout could be on. However, I look for this pair to fall back down to the 0.9850 level or so in the short term, and not necessarily a meltdown.