By: Christopher Lewis
The USD/CAD pair can be one of the trickiest pairs to trade in the Forex market. This often is because of the interconnected nature of both economies. The Canadian economy sends over 80% of its exports south of the border into America, and as a result it is very dependent on the US for its overall health. After all, if your best customer stops buying, things can get rough in short order.
The oil markets are highly influential in this pair also. In the oil markets at the moment, the Iranian situation continues to push the markets around with each passing headline, and as long as there is general uneasiness, oil prices are going to be high in general. The Canadian dollar has gotten a bit of a boost as well, but not as much against the US dollar as other currencies. This is simply because the rising price of oil is a bit of a fear trade, and as such the price of ol goes up with the value of the Dollar at times currently.
Several levels below
The biggest problem that Canadian dollar bulls are going to have in the short term is the fact that the 0.99, 0.98, 0.9750, and 0.97 all offer support in this pair. On the upside, the parity and 1.01 levels both are resistive, but with the overall bullishness in the oil markets I think that the CAD part of the equation should continue to be favored, but barely just so. The pair will continue to grind in my opinion, but with a slightly downward bias as oil markets continue to rally.
.png "USD/CAD Daily 3/21/12")
The breaking below of the 0.97 level would be a significant breakdown in this pair, and this would be very, very negative for the US dollar. In a sense of cautiousness, I am not interested in selling until we get below there. This is probably the correct direction, but I prefer to be involved in trades that have a chance to flow a bit more freely than this market looks ready to. On the other hand, if we close above the 1.01 level on the daily chart – I wouldn’t hesitate to buy. In the short-term, I think that the pair chops around in tight ranges.