USD/CAD fell during the session on Wednesday in order to break below the bottom of the down trending channel that has been such a prominent feature of this market lately. This is of course a very bearish sign, and it looks like the pair is heading quite a bit lower at this point.
This pair is known for breaking through channels it seems, as the main influence of this currency pair is the oil market. The oil markets are some of the most volatile commodities out there, and it makes sense that when things heat up work will often that market it slams this pair around rather violently.
Now that we are firmly through the parity level, it looks almost like a no-brainer to short this pair. However, there is going to be a lot of fits and starts between here and the 0.97 level, which I see as the ultimate support line. If we can get below that level, we should see a fairly significant move in this market to the downside.
Broken channel
What a currency pair breaks a channel like this; it normally signifies some type of acceleration of momentum. This certainly looks like we are going to accelerate the move downward and I suspect that eventually the 0.97 level will be tested. However, I am more comfortable selling the rallies in this pair as it gives you more of a "running start" in order to pick up momentum. We are extended at this point in time, so I am willing to fade those rallies as they come.
Having said that, I also have to admit the fact that I am more than willing to sell this currency pair if we break to fresh new lows. Simply put, it's not my favor way to trade this type of market but I have to accept the fact that I mean I get the perfect entry. The trend is obvious, and so is the direction at this point in time. Because of that I will only sell this currency pair at least until we get to the 0.97 level, at which point I will reassess the market conditions.