USD/CAD had a bearish session as the oil markets popped nicely during the Thursday trading day. The Canadian dollar gained as a result, and there is open talk about potential Federal Reserve easing now. This will work against the value of the US dollar, and by extension make it so that it takes more of them to buy oil.
The biggest problem with another round of easing is that the after effects of these moves are getting to be shorter and shorter. It can be thought of as a “sugar buzz”, you see strong gains, and then a hard crash. The truth is that the economies around the world need to deleverage. It seems everyone knows this but the central bankers. This will continue to weigh upon the commodities markets and the commodity currencies as a result.
This isn’t to say that we can’t see an appreciation of commodity currencies, rather that we may be seeing a different type of market over the next few years. I am not suggesting Armageddon; rather that growth globally is going to be weak. With this in mind, it is very likely that we will see oil markets fall from here. However, there are some areas this pair may have to revisit first.
Several support levels.
The pair has an obvious support level at the 1.02 level, and it appears in early trading for the Friday session that we are seeing a bit of a bounce. However, it really will come down to if the central banks do anything as far as easing – especially the Fed – as to what the next move in this pair could be from a long term point of view.
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As the charts look now, I suspect any fall will run into trouble at the 1.02, 1.01, parity, and 0.99 levels. This is why I am not overly excited by the prospects of selling this pair. On the upside, I see the real fight to be had at the 1.04 level. If that area gives way – this pair will rise rapidly. In the meantime, I do have an upward bias in this pair, and think that the trade will be risk off for Friday, meaning that the Dollar will likely gain. However, I don’t suggest being in this pair over the weekend as the Greek elections are going to cause a massive gap in one direction or another on Monday morning.