The USD/CAD pair managed to break below support during the Thursday session, and this bodes well for Canadian dollar bulls, at least for the meantime. This makes sense, as the light sweet crude oil markets broke out above the $90 resistance mark during the session. In fact, although sudden oil looks very strong and ready to make a fairly significant move to the $100 a barrel level. This should continue to fuel Canadian dollar buying.
The candlestick from the Wednesday session was a shooting star, and suggested that perhaps we were getting ready to make an attempt lower. While this has been verified now, it does look like the short term direction will run towards the parity level. But the parity level was always going to provoke some type of reaction as it is a large round number, and humans tend to react to these.
Watch oil
In order to trade this currency pair, you're going to have to keep an eye on the light sweet crude contract as well. The parity level below should cause some type of supportive reaction in this market, but as long as oil keeps rising, we should see continued downside pressure. It is at the parity level that we have to make some serious decisions in this currency pair, and as such I think watching the oil markets for some type of hint as to future direction will be vital.
If we manage to break above the $100 level in the oil markets, this pair will most certainly break down well below parity. In fact, if we can get below parity for whatever reason, I suspect that we will see a 0.97 print before it's all said and done. However, I think a lot of this is also based upon the idea that some kind of massive quantitative easing is coming. We have seen recently that the benefits from easing and stimulus are getting sorter in shorter lived, and as such I think that although this pair will more than likely fall, it will be for a somewhat limited time.
As for buying this pair, it's going to be very difficult to do until we break the shooting star from last week, which would have us going above the 1.0250 level. Once we get above that, it does show a significant switch in momentum, and would have me going long. I must admit, over the long-term I believe this pair will rise above that level, but we could be some time.