By: Christopher Lewis
USD/CAD is a pair that has been difficult if you are trying to hold onto your position for any real length of time. However, this can also be said for much of the markets in general, from the futures pits to the stock exchanges. The pair has been grinding sideways lately, and the reaction in this pair is a common one: this pair loves to consolidate.
One of the things about the pair that makes it a grinder more than anything is the fact that the United States and Canada are so interconnected. In fact, 85% of all Canadian exports end up south of the border in the States. Because of this, the economies are interlinked in ways that most simply aren’t. The United States is by far the largest buyer of Canadian oil, and as a result this pair will often follow the oil markets as this represents the flow of currency into Canada and out of the States. However, this hasn’t been the case lately.
While oil has been running straight up, the Canadian dollar has been fairly benign and even weak at times. The fact that this is happening has me very leery of the CAD in general. It is a simple situation of “something just isn’t right about this pair.”
Shooting Star
The session saw a shooting star form just above the parity level, and this will show that the pair continues to want to consolidate just below the area, and this could continue for some time. The fact that the market also has support in various spots all the way down to the 0.9750 level leads me to believe that the Loonie will struggle to continue in any meaningful way against the Dollar. The shooting star looks bearish, but until we can break through all of that support – it is a hard trade to be involved in.
.png "USD/CAD Daily 2/28/12")
The upside is capped by the top of the candle, and the 1.01 level. The level will simply have to be broken and closed above for me to feel that the upside momentum will continue. The pair looks like a great scalping pair though, and I may do that between the 0.99 and 1.00 levels until we make a bigger move above 1.01 or below 0.9750.