The USD/CAD pair broke much higher during the course of the session on Friday, clearing the 1.25 level. That being the case, we also broke the top of the hammer from the previous session, and as a result the market looks as if it’s ready to continue the consolidation that we had seen recently. After all, this is a classic technical analysis set up, as we broke the top of a hammer and the bottom of the consolidation area. With that being the case, I think that the market then heads to the 1.28 level next, which of course is the top of the rectangle that we have been trading in.
Yes, I believe that the rectangle is still very much intact, but I also recognize that the market had been in a very strong uptrend before we started to form this consolidation. Typically, consolidation like this after a significant move in one direction or the other is a sign of continuation, and I think that’s the case here as well. After all, the oil markets are doing no favors for the Canadian dollar right now, and as a result it makes sense that the US dollar continues to climb in this particular circumstance.
[CAD:FXAcademy CTA #73]Canadian Central Bank
Remember, the Canadian central bank released a statement and a surprise rate cut not too long ago. That was to counteract what’s going on in the energy market and the fact that perhaps the Canadian economy isn't as strong as some people thought. This is exacerbated by the fact that the oil markets have been so soft, and as a result it doesn’t help that the oil markets are priced in US dollars as well. Ultimately, it’s only a matter of time before this pair breaks out in my opinion, but remember that the 1.30 level above was where the financial crisis pushed the pair last time. Getting above there is going to be a bit of a Herculean task, but eventually I think it happens. Once it does, this becomes more of a buy-and-hold situation.
