The USD/CAD pair continued to bounce around in a very tight range during the Thursday session as the markets that we have no idea where wants to go. Looking at this chart, it is easy to see why a lot of my trading friends have been chewed up over the last couple sessions. We simply have had a significant move higher, but cannot break above crucial resistance. On the other hand, significant support has come into play and we are now stuck in roughly a 100 pip range.
Obviously, the oil markets will come into play when it comes to the value the Canadian dollar as it normally moves with the commodity. Right now, we have a problem with the oil markets showing extreme weakness, and a severe lack of demand. Adding to that is the fact that the global markets in general seem a bit jittery, and global demand seems to be far from being able to outstrip supply. When you look at the futures markets and crude oil, you were seeing that the oil producers are having trouble finding storage. This is never a good sign for the value of the commodity.
Could we be breaking out?
If we get above the parity level, I firmly believe that we will retest the 1.04 handle. This is because we would be reentering the previous consolidation area that held this currency pair in check for so long. It would make perfect sense, as the pair tends to consolidate over longer periods of time anyways as the two economies are so intertwined.
The Bank of Canada recently had a statement that sounded much more dovish than people had anticipated. In fact, a lot of people thought that the Canadians would be raising rates relatively soon, but it appears that they are just as far away from doing it as many of the other major economies. With this in mind, there has to be a repricing of the value of the Canadian dollar, and as such it wouldn't surprise me to break out to the upside because of that.
I essentially have one of two outcomes: if we managed to close on the daily chart above the parity level, I will be long of this pair and holding on for several handles. Alternately, if we break down below the 0.9880 level, I will be selling this pair and holding on for the longer-term move as it is with the overall trend.