The USD/CAD pair did very little during the Tuesday session, as the markets continue to digest all of the news surrounding the oil markets. Looking at the recent action in this pair, we have seen a break down below the 0.98 handle which was once supportive. In fact, this was the bottom of a massive consolidation area, and as such the breakdown early in September should have been very significant.
We saw the pair fall all the way down to the 0.9625 area, but only to bounce higher and back to the 0.9860 level. In a sense, we are trying to figure out whether or not this was a false breakout, or the beginning of acceleration to the downside. The action on Monday suggested that we try to get back above the 0.98 handle, but failed. However, on Tuesday we saw an outside candle that was positive. I still see quite a bit of resistance all the way to the 0.9950 level on this chart, and as such I am not willing to buy quite yet.
I still believe that this pair will have a much easier time falling than rising. However, with the sudden concerns of global growth it may be difficult for commodity currencies to continue to gain for the short term. Because of this, the Canadian dollar of course will be vulnerable to the safe haven trade as money will flow back into the US dollar.
Consolidation, then the move
This pair has a long history of grinding for significant amounts of time before moving in one direction or the other. The move is normally quite sharp and drastic, so it certainly catches a lot of people off guard. Because of this, it is absolutely vital to have set levels in this pair in order to make your trading decisions.
For me, the buying level is the 0.9950 level. If we can get above that on a daily close, I think that we will continue to bounce around in the former consolidation zone and aim for the 1.04 level. On the other side of that trade, I see the 0.97 handle as one that could get sellers involved if we break down below it. In the meantime, I feel this pair will do very little and probably be very choppy.
