By: Christopher Lewis
One of the choppiest pairs in the Forex markets lately has been the USD/CAD pair. The main reason is probably the drama that we have seen in the Middle East lately, and especially with the Iranians. The oil markets have been thrown back and forth by the issues involving the Iranians, and as a result the Canadian dollar has been rocked back and forth as it follows the oil markets in general.
The pair is also very choppy at times in general because of the interconnected nature of the two economies. As the United States does better, this helps the Canadian dollar actually as the US is the destination for over 80% of all Canadian exports. Conversely, when the US economy gets bogged down, Canada suddenly finds that its biggest customer isn’t buying. This will hurt the Canadian dollar and help the US dollar. In a lot of ways, this pair moves opposite of what one would think at first.
Hammer Time!
The Friday session saw the pair rise above parity, but fail to close above it. The resulting candle for the day was a shooting star, and placed at the “perfect spot” to see one. The failing of the bulls does in fact look ominous. Adding to case is that the oil markets are looking like they are about to catch a serious bid going forward.
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The breaking of the Friday lows would in fact be a classic sell signal. On top of all things that I mentioned before, the 200 day EMA is right at the top of the shooting star, and this should bring in the trend traders as well. The market will continue to be affected by the headlines out of the Middle East as well, and it is difficult to imagine that the shocks coming out of that region will be anything but bullish for oil. This in turn should push this pair lower, and if that happens we will see the 0.9850 level tested for support. If that gives way – we go much, much lower.