USD/CAD had a bullish session on Tuesday as the “risk off” trade continues. The commodity markets all took a beating as the Dollar reigns supreme. For all of the talk about the Dollar no longer being the safety trade, we are seeing yet another example of how this isn’t true. The Dollar is still the first place that traders run to when there is serious trouble or concern in the markets.
The action in this pair mirrored the Light Sweet Crude markets on Tuesday as that contract finally fell through the $95 support level to signal further declines. The oil markets are finally starting to become connected with reality now, and as such the demand part of the equation should be listened to. The demand simply doesn’t justify the current prices, and the fact that we could be marching towards a real mess in Europe could also punish everything but the US dollar.
1.01 is crucial
For myself, I think this pair eventually rises over time. However, the parity level has been brutally resistive recently, and the level is just the start of the “zone” that I see as resistive. The 1.01 level is the top of that area, and I need to see a daily close above it to feel comfortable going long. The 200 day exponential moving average is below the current prices now, and it does suggest that there is significant pressure to the upside at the moment. This is part of why I think the pair will rise eventually.
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The selling of this pair would take a real leap of faith, even though the trend is most obviously bearish over the last couple of months. The oil markets would suddenly have to rise, and this would call for a calming of the markets as well as an increase in risk appetite. At this point in time, I just don’t see that coming and think the summer is going to be a very volatile one like last year. I am not ready yet – but we are only 50 pips or so from me going long in this pair.