The USD/CAD pair is one that has been interesting to me lately. This is in many ways the epicenter of all of the crosscurrents in the financial markets over the last couple of weeks. As most of you will know, the oil markets play an important role in the value of the Canadian dollar over time. This is interesting as there are so many things pushing that market around at the moment.
The oil markets have dropped a bit lately because of a rumored Strategic Petroleum Reserve release. There are plenty of reasons to think it could happen, as the Obama administration has done this before. However, the market will only take this so seriously as it only worked for about 8 days as far as keeping prices down last time.
Because of this, I would actually welcome this as a buying opportunity in the oil markets, and by extension the Canadian dollar. Also, you have to be aware of all of the trouble in the Middle East, and this is always supportive of oil prices. There are simply far too many moving parts in the Middle East at the moment to think that trouble is far away, and as such we could see sudden spikes in the price of crude going forward.
But wait….there’s more!
The Federal Reserve is adding to its quantitative easing program, and as such the value of the US dollar should continue to decline overall. This will push up the price of oil as well, and the simultaneous decline in the Dollar certainly should see this pair fall as well.
The 0.98 level being tested on Monday and holding true is interesting in the sense that it used to be the support of a massive consolidation area that stretched all the way to the 1.04 level. This consolidation area is now broken, and based upon the measurements, we could be looking at a move down to the 0.92 level.
The shooting star for the Monday session really couldn’t have come at a better spot. On a break lower, I will be short this pair. Conversely, I see a move above the 0.9950 level as something to be excited about on the long side – no matter how unlikely it is.
