The USD/CAD pair fell significantly during the session on Thursday, but found enough support to turn things back around and form a hammer. The hammer is at the top of the range that we have been trading in now, so it appears that the market is ready to try to go higher. What I find interesting about this is not only is the oil market going very little, but it is Canadian Unemployment Numbers today, and I think that it could be a major mover of this currency pair. With that, I think that today will be very important.
Normally, when you see a hammer at the top of the range, it means that the market is about to make some type of decision. We can break higher, and that of course is a fresh, new high and it shows that the sellers simply could not push the currency pair lower, meaning that the buyers have certainly taken control. However, if you break down below the bottom of the hammer that essentially is what is known as a “hanging man”, which is of course a very negative sign.
However, technical analysis is an art form and not a science
In this particular scenario, if we break down below the bottom of the hammer, I do not consider that it is a “hanging man”, even though it technically is. I think there’s far too much in the way of support near the 1.25 handle, so I cannot imagine shorting this market until we break well below there, and truthfully probably even lower than that. I think that the market will ultimately break out to the upside anyway, and perhaps head to the 1.30 handle which was the height of the financial crisis. It was that area that we cannot break out above, and perhaps we finally will free ourselves of that barrier. Regardless, you can expect a lot of choppiness, that’s the norm in this pair anyways. I am bullish, but recognize that a smaller than usual position size is probably warranted.
