By: Christopher Lewis
This pair has been very quiet on the whole over the last several weeks. When you think about the relationship between the US and Canadian economies, this makes total sense. After all, the Canadians send over 80% of their exports into the US, and as a result – they can’t afford to have the Americans become too weak economically. It is akin to having your best customer suddenly go broke when a recession happens in America for the Canadians.
The oil markets are most often looked at as the driving factor in this pair. While there is certainly truth to this, it isn’t the only thing. In general, if the US is falling into economic decline, the pair will actually favor the Dollar, as Treasuries are bought, and the Canadians will sell less. The rising oil prices will often favor the Loonie as well, but only so much. After all, if the price of oil gets to be too high – it causes demand destruction in the United States. As you can see, there is a lot of things pushing and pulling on this pair at any given moment. It is because of this that a lot of traders I know don’t trade this pair. However, if you are willing to be patient, I have found this pair very agreeable over time.
Consolidation
The pair continues to consolidate, but there are some very clear levels in which to place new trades if they get taken out. In the mean time, we will more than likely see the continued bouncing back and forth between the 1.01 and 0.98 levels. However, with the Federal Reserve meeting ending today, and the subsequent news conference, there could be a move in this pair.
.png "USD/CAD Daily 42512")
The breaking below of the 0.98 handle on a daily close will send this pair much lower. This would more than likely send this pair looking for 0.95 or so before significant support comes back into the market. If we get a surge higher, I wouldn’t take it serious until we are above the 1.01 handle. Until then, any bullish action would have to be looked at as potential selling opportunities whenever weakness appears.