By: Christopher Lewis
USD/CAD has been an interesting pair lately. The oil markets always tend to have an effect on the value of the Canadian dollar, and as such this pair, along with the Norwegian Krone, (USD/NOK) will often move inversely to the price of oil.
With the EU threatening a boycott of Iranian oil, tensions have been rising in the Persian Gulf. The Iranians have threatened to close the Strait of Hormuz, and as 1/6th of the world’s oil supply ships though that point, it has been a nerve-racking set of events for the oil traders of the world. On one hand, you have this mess, on the other – demand is slowing in general. As a result, the movements in the oil markets have been tightening – much like this pair.
North America has also been starting to do well in comparison to many other economies. The Canadians send more than 80% of their exports to the United States, so as the US goes, so goes Canada. The US economic numbers have been better lately, so it stands to reason that more Canadian goods would be consumed, therefore pushing the value of the Loonie up over time. However, the charts are saying that while we don’t know the next move yet – it could be explosive.
Triangle Holds
The Thursday session saw a breakdown below the uptrend line of a larger symmetrical triangle that has been in play for over a month and a half. The pair continues to tighten up for reasons mentioned above, and as a result has formed this very large pattern. The pair has a history of going nowhere for a length of time and then suddenly moving in one direction. It looks as if we could be seeing this soon.
.jpg "USD/CAD Daily 1/20/12")
The 200 day EMA is sitting just below the now failed breakdown of the triangle. The daily candle formed a supportive hammer, and the fact that the 1.01 level is the start of serious support down to 0.99 leads me to believe that the next short-term move is going to be up. In fact, if we break the top of the Thursday range, I would be willing to go long under the assumption that we continue to consolidate within this triangle. I would also be willing to leave half of my position on just in case we break out to the upside, which with the Dollar being a “safe trade” in currency markets is always a possibility.