By: Christopher Lewis
USD/CAD has been one of the more reliable range bound currency pairs lately. The pair has essentially hovered just below the parity level, and with consistency has failed to break out every time it has risen above that level for much of 2012.
The oil markets have a lot to do with this, naturally. The price of oil has been back and forth, but every time it looks as if oil is going to fall apart completely, the market turns back around. This is the same thing that we have seen in this currency pair as well. As these correlations hold over time, it only makes sense that the Loonie sellers would struggle going forward in general, as the demand for oil expands, but the supply doesn’t. Of course, threats of cutting off major supply routes from Iran don’t do a whole lot to calm the marketplace either.
The cyclical trend for this pair is certainly down, even if this year has seen this tight range. One simply needs to look at where the pair was trading a few years ago to have a good idea of how it has progressed. The pair is a good barometer of economic activity, and as long as the economies around the world are generally healthy, this pair will typically fall.
Parity holds…yet again.
The parity level held yet again on Thursday, as the market tried to get above the level but found itself wanting by the close. In fact, the pair fell hard enough to form a shooting star at the parity level – one of the most obvious resistance levels. This makes for an obvious set up, and this is exactly what we look for when trading – something everyone else sees.
The 200 day EMA is just above the recent action, and so far has been holding price down. The pair looks as if it is going to fall at this point. On a break of the shooting star’s bottom, I am selling for a short-term trade. I believe the overall consolidation continues, but this trade is too obvious not to take advantage of.