By: Christopher Lewis
The USD/CAD pair is one of the first ones people look to when they think of oil. While the oil markets certainly can be influential in this pair, there is a lot more to this market than most people think of. It is because of this that the pair can frustrate, but it is also one of the things that allow range traders to prosper in it so often. In fact, if you prefer trading ranges, this pair and perhaps the EUR/GBP are two markets you should be very interested in.
The reasons for both of them being so range bound are similar. The two economies in both pairs are so interconnected. The Canadian economy is very dependent on the United States for its sales, as the US is the destination for 85% of Canadian exports. This means that the Canadian economy is very heavily influenced by the situation in the United States. So as the jobs numbers in the United States come in light, this can actually hurt the Canadian dollar as this means less exports to America. It is a backwards kind of intuition, but one that is often overlooked.
Oil at a breaking point?
The oil markets, the Light Sweet Crude market specifically, are testing the $95 level. This area is absolutely vital for the markets to continue to be bullish, and if it gives way, the Canadian dollar will suffer. The parity level in this pair has been a bit of a proxy for the $95 level in oil, and as one goes, so goes the other.
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The pair seems to struggle to get over the parity level, and as a result we have an obvious level from which to look for sell signals. The resistance level goes all the way to 1.01 as far as I can tell, and as a result I won’t buy this pair until we get over that area. In the meantime though, as long as the parity level can hold this pair down – I am willing to sell. I am going to look for shooting stars or long red candles on the hourly chart to have a crack at it. The truth is that the trend is down, so this trade makes the most sense.