USD/CAD rose during the Thursday session as the market continues to look rather supportive. The oil markets fell slightly, and as such it looks like the Canadian dollar is due for a little bit of a pullback in its strength. It should also be noted that we have formed to hammers over the last couple weeks that both the drop down to the 0.9830 level and it does look like we are starting to see massive attempts at support in this general vicinity.
This really shouldn't be a surprise. If you look at the longer-term charts, this is getting pretty close to the perceived the bottom of a larger consolidation zone. Over the last year or so, we have been bouncing between 0.98 and 1.04 or so. With this being the case, we are at the bottom of the consolidation range, and as such long is the only direction we can go.
Looking at this chart, it becomes increasingly obvious to me that the 0.9950 level is a barrier that the buyers will have to break in order to push prices higher. I think that the parity level could cause a reaction as well, but let's be honest: it's been chewed through several different times recently.
Five handles
The consolidation area is roughly 5 handles tall, which isn't that unheard of in this pair. After all, you have to realize that the two economies are highly interconnected, and as such back-and-forth consolidation is a fairly common occurrence. Whether or not the US dollar can gain on the Canadian dollar long-term is a completely different conversation, but I do think that this market is completely oversold at this point.
There is simply no economic or industrial demand for massive amounts of oil at this point in time. Simply put, the light sweet crude markets are probably being held up by two things: the trouble in the Middle East, and anticipation of possible Federal Reserve quantitative easing. Neither of these two reasons can hold the market on forever, as they have absolutely nothing to do with fundamental demand. Is because of this that I feel we will see a pullback in oil prices, and therefore a rise in this chart.
However, you always have to look at the other side of the trade. I do see that we break down below the 0.98 level, we could fall much further. At that point in time, I wouldn't hesitate to sell this pair.
