The USD/CAD pair initially broke down during the course of the session on Wednesday, dipping below the 1.24 handle. However, the buyers came back in and push the value the US dollar much higher. Ultimately, we ended up forming a hammer and we are at the bottom of a significant consolidation area. With this, I feel that this market will continue to go higher and that a break over the top of the range for the session on Wednesday is in fact a decent buying opportunity. I feel that the market should then head to the 1.28 handle given enough time, but I also recognize that the market might be a bit choppy between here and there. Regardless, I think there is far too much in the way of support below to start selling this market anytime soon.
Watch the oil markets
The oil markets have woken up a bit over the last couple of sessions, and started to look somewhat bullish. However, it changed during the Wednesday session as most oil markets got clobbered. With this, it should continue to drive the value and demand for the Canadian dollar lower, thereby pushing this pair higher. I believe that the US Dollar will continue to be the favored currency around the world, and most certainly favored above the Canadian dollar at the moment. In fact, I believe that the commodity currencies in general are going to be soft, but I also recognize that this particular pair is interesting because the two economies are so intertwined.
I think that ultimately we should continue to go higher, probably testing the 1.30 level given enough time. However, because of the intertwined nature of the two economies, it is not uncommon for this pair to go sideways for long periods of time. Ultimately though, consolidation like this typically ends up being continuation. The real question will be whether or not we can get above the 1.30 handle, which is massively resistive. I don’t really have any interest in selling.
