The USD/CAD pair had a strong showing on Tuesday, breaking above the 1.01 handle and more importantly the top of the hammer that had formed on Monday. This of course shows significant support, and now bullish momentum to the upside. This market looks like it's ready to continue going higher, mainly based upon the fact that we are closing at the very top of the candle for the session.
Another thing that seems to be confirming that this market will more than likely go higher is the fact that the oil markets look so suspicious at this point. It appears that oil markets will sell off any time that a rally, and this of course will work against the value the Canadian dollar over time. As Canada exports so much oil to the United States, it makes sense that this market runs inversely to the oil markets in general.
Looking at the candle, the fact that the market close so close to the top suggests that not only this currency pair could go higher, but oil could go lower. Looking at this chart, it appears that we will make an attempt at the 1.02 handle relatively soon, and even if we don't right away, a pullback should be a nice buying opportunity at this point.
Parity and its importance
Looking at this chart, it's obvious of the bounce from the parity level didn't mean something. Parity has been broken in both directions several times over the last several months, but the fact that it offered similar support this time does suggest that perhaps there is more strength creeping into this marketplace. Overall, the US dollar is showing strength against most other currencies, so why would the Canadian dollar be any different?
Going forward, we fully expect this market to continue to climb towards the 1.03 handle, which at that point we will have a real fight on our hands. From a longer-term perspective, if we can break above there we will try the 1.04 handle, and that opens the door to the 1.10 handle in the future.