USD/CAD Forecast: Pulls Back from Highs

• The US dollar initially tried to rally again during the early hours on Thursday, but then dropped significantly to reach below the 1.44 level again.
• That being said, I would not read too much into this, because the problems in Canada there are still very much alive, and you could make an argument that this is simply a situation where the market is trying to pull back and find a little bit of balance so buyers can take advantage of value in the greenback.

Technical Analysis

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The technical analysis for this USD/CAD pair is obviously very bullish, but under just about any metric that you measure this market by, we were a bit overbought. I think at this point in time we could drop all the way down to the 1.42 level before changing even the slightest of metrics in this market, and I think short-term pullbacks are an opportunity for those to find value. Because of this, the market is likely to continue to see a lot of questions asked of the markets overall, as the US dollar got out of hand.

This does not mean that we are ready to throw in the towel for the greenback, because I think the longer term is still very positive for the US dollar, and of course Canada has a lot of concerns when it comes to the budget. If Justin Trudeau finally resigns, then that might help the Canadian dollar for the short term, but I think there are bigger structural concerns here. One other thing that could possibly help the Canadian dollar is if the oil market takes off, but it will be somewhat limited in this pair, due to the fact that the United States produces so much crude oil as well.

On the upside, if we were to break above the 1.45 level, then the market is likely to go looking to the 1.47 level. Ultimately, I think we need to take a little bit of a breather here, in order to find some type of stability that we can take advantage of.  I am just simply waiting for a little bit of a bounce to take a long position again.

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