By: Christopher Lewis
USD/CAD rose on Thursday as the oil markets sold off. The Chinese manufacturing numbers have been soft, and the addition of slower European manufacturing numbers did very little to instill confidence in the oil markets. This saw a sharp decline, but it should also be said that the oil markets are sitting on top of support at the $104 level, and have found it to be strong indeed.
The USD/CAD pair has found quite a bit of resistance at the parity level, and as long as oil prices remain strong, it is difficult to imagine the USD/CAD pair rising too far as the Canadian dollar is so correlated to the value of oil. The pair will continue to be held hostage by the headlines coming out of places like Iran, the Sudan, and Libya.
Parity, 200 day EMA, and 1.01
The market is presently running up against the parity level, and this is a site of significant resistance. The resistance found there extends all the way up to the 1.01 level, and as a result the area could cause serious headaches for the bulls. In fact, the zone has several times recently, and until we get a daily close above that level – I don’t see a buy signal.
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Also of note, the 200 day exponential moving average is sitting just above, and a close above the 1.01 level would show the market rising above this crucial indicator as well. The 200 day EMA is a favorite of trend traders, so this break out would be very significant, and as the move would be countertrend, I need to see all of these conditions filled in order to go long.
As far as selling, I will do it if I get a bearish or weak candle in this area. A shooting star at this point would be absolutely perfect as a signal. None the less, there are cases to be made for support and resistance at every handle, so trading will more than likely be choppy no matter what direction we head. Support doesn’t completely give way for longer term trades until the market reaches the sub-0.97 area.