The USD/CAD pair looks like a very interesting market to me at the moment. The pair has been very range bound over the last few months, and the oil markets have also been very confusing to a lot of traders as well. The commodity trade has been absolutely hammered lately, and this chart shows just how far the oil markets fell.
The Canadian dollar will typically follow the price movements of the oil markets, and as a result many traders will use it as a proxy for that commodity. However, the oil markets have stabilized over the last couple of days while this pair has risen, meaning that the Canadian dollar is getting weaker. These types of divergence can mean that something big is about to happen. Sometimes, we see a move in one market before the other, and the astute trade can take advantage of that if they are paying attention.
$95 and 1.01
There are two levels you need to know when trading the Canadian dollar at the moment: $95 and 1.01. The $95 level refers to the support area that the Light Sweet Crude markets will absolutely have to hold in order for the oil markets to remain bullish under any metric. If that gives way, oil is going to fall hard – and so will the value of the Canadian dollar.
However, the trade isn’t going to be safe in the USD/CAD pair until the 1.01 level is cleared. This is because we have seen a resistance “zone” from the parity to 1.01 levels that have been very strong. In fact, if it gives way we could see a real pop in this market. The pair has a long term history of grinding sideways in consolidation and to suddenly move in a single direction.
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The 200 day exponential moving average is just below the recent price action and at the lower part of the hammer for the Thursday session. The parity level is just below now as well, so this could be the start of a move higher. However, I won’t buy until we see a daily close above 1.01. As for selling, a break down below the hammer for Thursday would convince me to sell as I think this would be a reentry into the consolidation level.