The USD/CAD pair shot straight up on the Wednesday session as the “risk off” attitude still remained king. The pair ran into the 1.03 resistance area though, and then promptly fell 60 pips or so. The resulting candle is a shooting star, and as a result there are potential bearish scenarios creeping into the markets at the moment.
However, the move late in the US session had very little to do with Canada or the United States. The market seemed to buy risk or at least cover shorts on riskier currencies at the end of the day on potential good headlines out of the European Union as the leaders close out their meeting in Brussels. However, a lot of this was predicated on the idea that the French and Italians are somehow going to convince the Germans to back Eurobonds, which puts them on the hook for the debts of several broke countries. Not very likely is what I suspect and I thinking this “risk rally” will more than likely be something that will be reversed in relatively short order.
Pullback looks likely
The pair is without a doubt overbought at this point in time. The move has been ferocious, and the 1.03 level was always going to be a resistive hurdle to climb by the bulls. The candle shape is about perfect for the sellers, but the breaking of the bottom of this candle isn’t a sell signal for me, rather a sign that a pullback is coming from which to buy.
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The 1.02, 1.01, and parity levels all look interesting for long positions on the right candle. The supportive action at these levels will have me buying again as it would be a continuation of the underlying fears of the economic situation in Europe, which for sellers of risk has been the gift that keeps on giving. A break of the top of this shooting star would be a massively bullish sign as well, and I wouldn’t hesitate to buy if that happens as well. As for selling, I am not even thinking about it until we get a close below the parity level.