By: Christopher Lewis
USD/CAD had a nice bullish session on Tuesday as the oil markets fell. This in and of itself isn’t that surprising, this is the way that the pair typically acts. The Canadians sell oil to the Americans, and when the price of oil rises, typically it follows that it will take more of those US dollars to buy that oil. This flow of money into Canada makes this pair fall. At least this is how it normally is.
However, we have recently seen the price of oil rise while the Canadian dollar hasn’t necessarily followed suit. With this in mind, there seems to be something “wrong” in this pair, and this leads me to not trust it so much. However, when oil falls, the US dollar can still gain. This means that lately, on the margin, only half of the equation is being fulfilled. This has me very suspicious indeed.
Messy, Choppy, and Losses Waiting to Happen.
The pair has been very choppy as of late, and there haven’t been many direct and clear moves. The pair will do this from time to time, only to suddenly wake up and make a massive move. The pair acts a bit like the EUR/GBP pair, in so much as both currencies are interconnected. The trade between the US and Canada is significant, and as such – what is good for one is generally good for the other, and vice versa.
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The charts look very tight at this point, and although there has been a nice move up lately, the market is pressing up against the parity level. I define this level as all the way up to the 1.01 mark, and it is up there that the market must close on the daily chart for me to buy. I will admit that all things being equal – I prefer the US dollar. In reality though, I have to trade the chart and it tells me that level must be overtaken. In order to sell, I need to see a daily close below the 0.97 level. There are far too many minor support levels on the way down there to risk my trading capital at this point.
While I know it is a wide zone to have to break out of in order to place a trade, sometimes the best trade is to be very careful. Also, Friday will bring in Non-Farm Payrolls, and this announcement will move this pair quite a bit.