The USD/CAD pair fell during the session on Monday, piercing below the 1.02 handle. However, this is more of a "squishy" zone, and as a result eventually the market found support. The resulting support caused the market to bounce, and then therefore print a hammer for the day. This hammer has a bottom and that is almost identical to the lows that we saw on Friday, and as a result it appears that there is significant support right around the 1.0165 level.
If we managed to break down below that level, I think this market will more than likely attempt to find parity level in the short term. There is a lot of noise below, and that won't be the easiest move but it does appear that's the case. On the other hand, a lot of times you will see these supportive hammers appear right before the market continues higher. That is my base case, and I think as long as we can crack the high of the session on Monday, this market will more than likely head towards the 1.03 level, an area that was once support. It now looks set to be resistance, which of course is basic technical analysis.
Watch the oil markets
Watch the oil markets for direction as well. Remember, this market tends to work in an inverse fashion to the oil markets, and as the oil markets rise in value, this market will typically fall as the Canadian dollar picks up strength. The fact that it appears it is going to be such a fight to get lower from here, suggests that not only the pair will rise, but perhaps the value of oil was about to take a hit.
Alternately, if we managed to get above the 1.04 handle I think this market could really take off. The candle shape for the Monday session is roughly perfect, and as a result I truly believe that we are going to see more bullishness in this market over the next several months. This market has a long term history of going sideways, and then suddenly exploding – so please keep that in mind.
