By: DailyForex.com
The USD/CAD pair has been stuck between the 0.99 and parity levels recently, as this pair continues to consolidate. In a lot of ways, consolidation is the norm in this pair as the two economies are so interconnected. The markets will certainly be waiting for some kind of result out of America for the next President.
The oil markets also play a large role in this pair as well, and with an Obama victory, this would put America on the path to a 20 trillion Dollar debt by the end of his term. With this in mind, it is almost impossible to think that the US dollar will retain its value over time against both oil, and more importantly in this scenario – oil producing currencies such as the Loonie.
The next move in this pair will more than likely be in reaction to whatever happens in the election. The reality is that we need to break out of the recent consolidation area between the 0.99 and 1.00 levels in order to make a definitive choice as to which direction we are going for the larger move that will eventually happen.
Volatility
The volatility in this pair could pick up once the election is decided. This is mainly because of whether or not the fiscal cliff becomes a reality in the US. If it does – in a lot of ways this will be more detrimental to the Canadian economy than the American one. The Americans buy 85% of the exports out of Canada, and as a result we think that if the biggest customer suddenly cannot buy, then the Canadians will certainly be hurt as well. In this scenario, in an odd twist we could have this pair rise in value.
The near term trade will certainly be dictated by the “mini breakout” that will certainly come in the meantime. The pair has been trending down for the longer-term, so this move would be the one with the least resistance going forward as well. Because of this, I would more than likely be willing to take a larger position on the sell side than the buy side.