By: Christopher Lewis
USD/CAD is a tricky pair at times. I think this is because by nature, most traders like momentum, and this pair typically grinds. The two economies are far too interconnected to think that there can be a one way run for long, although over time the pair has fallen. The external influences include the US job market, oil markets, and commodity demand in general which can often come back to manufacturing numbers out of America.
The reason for this is very simple: Canada sells over 80% of its exports to the US. Because of this, the Canadians can enjoy a strong currency and economy, but don’t want it to happen too rapidly, because this can strain their customer base. Quite often you will see hectic moves in this pair based upon larger macroeconomic issues like the ones listed above, but only after long periods of sideways action. As a result, this is one of the best range trading markets in my opinion.
Sideways still
The pair has been grinding sideways for some time now, and as I mentioned above, this is normal. In fact, it makes sense as the US seems to be doing “alright”, but the rest of the world is struggling. Essentially, this is a play on whether or not the US can pull the rest of the world up with it or not – hence the hesitation by CAD bulls.
The parity to 1.01 area is a major resistance point, and that is where I have been shorting this pair for short-term gains. The 200 day EMA is just above and starting to turn downwards, so this is my favorite way to trade this market at the moment. However, there is a lot of support below and at several intervals as well.
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The 0.99 is the start of the support, and I see it all the way down to the 0.9750 level, at 0.99, 0.9850, 0.98, and 0.9750. I figure once we start testing the 0.97 handle, we have broken the backs of the bulls. Until then though, we have to understand that this market will continue to trade in a choppy manner. As we popped on Wednesday, I am looking to sell this pair again, near the parity level, and on the first signs of weakness. I will probably take profits after 50 pips or so.