By: Christopher Lewis
USD/CAD had a bearish day on Tuesday as the oil markets got a bit of a bump in lighter volume trading. The Canadian dollar showed its relationship quite with the oil markets quite well as the currency gained against most currencies around the world.
The oil markets all rose when the trading opened as there are plenty of fears involving the Iranians at the moment. The EU and US are proposing sanctions against the Central Bank of the Islamic Republic of Iran, and these sanctions would effectively say that if you choose to do business with Iran, you won’t with Europe or America. For their part, the Iranians have been threatening to block the Strait of Hormuz where over 60% of the world’s petroleum travels through. This has been answered by Saudis saying they could increase production in order to make up the difference coming out of Iran, and the United States sending its Fifth Fleet closer to the Persian country’s waters.
Needless to say, traders have been buying oil first and asking questions later. Sooner or later though, cooler heads could prevail as the Iranians are certainly not interested in going to a shooting war against the United States. The fleet currently parked outside their door is expected to be able to wipe out the Iranian Air Force in a matter of a week, and send the Navy to the bottom of the sea in a few days. Because of this, the Iranians aren’t likely to make this mistake.
Technicals Going Forward
The chart looks somewhat bearish at the moment, but I see support all the way down to the 0.99 level. Of course the parity level is the one that people pay attention to, but the lows in October of 2011 are sitting right at the 0.99 level, and that is the bottom of support in my opinion. The 1.01 level did hold up towards the end of the session on Tuesday, and the bounce at the end of the day was good for about 70 pips. I am buying this pair on supportive candles. The pair looks more and more to me like the 1.01 to 1.04 levels are the boundaries of future consolidation. This pair can be sloppy at times, so these levels are general guidelines. The 4 hour chart could be the key to finding the supportive candle that would signal a buying opportunity such as a hammer or simply a large green candle. A break below 0.99 is what I would need to see to be comfortable selling. The situation in the Middle East gets worse – oil could rise…..but the Dollar would eventually be bought hand over fist anyway.
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