If there ever was a confused pair, it is the USD/CAD at the moment. This pair is most certainly in a down trend, but the market is being pushed around by outside influences that make it trade a bit on the erratic side lately, and as a result we have to look at the larger picture for guidance. (You should be doing this anyway – no?)
The pair has been relentlessly sold off for months now, but was still within a consolidation rectangle by all accounts. I see this rectangle as being between the 1.04 and 0.98 levels, and as a result, the action two weeks ago was significant in my eyes. Once we broke below the 0.98 level, this really set the stage for much lower prices.
However, there are a lot of rumors in the oil markets at the moment that are suppressing prices. The rumors of a Strategic Petroleum Reserve release out of the United States has put a bit of a lid on the market, and as a result the light sweet crude market pulled back as soon as it hit $100 a barrel. With this in mind, the usual correlation between higher oil and lower USD/CAD has been working against the sellers at the moment.
0.98 looks heavy
The 0.98 level still looks heavy to me, and I think that as long as we stay under it – there is no way to go long in this pair. In fact, the rectangle that we broke out of to the downside suggests a move down to the 0.92 based upon the usual measurements. Because of this, I think this pair is a long-term sell and hold.
The oil markets could be rocked by the SPR release if it happens, but last time it did – prices were only suppressed for about 8 days. The fact that we are near the election in the US does make this possible, but so far there has been nothing substantial out of Washington to suggest that it is about to happen. In the end, I think oil goes higher regardless. After all, the Federal Reserve has promised to keep its monetary policy loose for some time, thereby working against the value of the Dollar.