The USD/CAD pair has been a straight shot up lately, and this will have caught many traders by surprise. It really shouldn’t though, as if you look at it historically – it likes to do just this. It will sit for a while, and then suddenly shoot in one direction.
The interconnectedness of the two economies is partial to blame for the tight trading most of the time. However, over the weekend we had reports that the Iranians decided to be difficult in the talk about nuclear weapons again, so there is a possibility that oil gets a bid on Monday. However, the overall global demand isn’t that strong, and in the end this will trump all. If the oil markets pop, then we could see the overextended market pullback at this level. Quite frankly, it could use it at this point.
This 1.03 level is a major one for my money. It is a place where we can see serious resistance, and the fact that we have ran so far so long is going to have me waiting to see if the market can close above the 1.03 level in order to buy from. A break above and ability to close there would be a bullish sign indeed.
The pair does however; look more than likely to pullback. If it does, I see a lot of support between the parity and 1.01 levels, and would gladly buy supportive looking candles in that area as well. I am not prepared to short this pair under any circumstances because of the commodity correlations with the Canadian dollar. This isn’t to say that the Canadian economy is doing poorly – far from it. But I do know how Forex traders look at the Loonie, and the whole “Com Doll” aspect is one that they won’t look past.
It isn’t until we close under the parity level that I can only see some kind of rethink about this pair. It was from that area that we broke out so violently, and it would have to be completely retaken for me to see this pair any differently.