The USD/CAD pair broke down pretty hard during the session on Tuesday, and quite frankly surprised me a bit. I feel that breaking below the 1.10 level is a sign of the seller starting to gain control, but at the end of the day I still believe that there is plenty of support only down to the 1.09-ish area. With that, I feel that the market will start looking for support somewhere in this general vicinity, but it’s going to be a bit of a fight in the short term. I think that once we get a supportive daily candle, we may be able to start going long again, and as a result I think that we may be expanding the consolidation area a little bit. I still see the top of the consolidation area as the 1.1250 area, so if we get the right supportive candle, we could in fact have a fairly decent move.
With that, I think that watching the oil markets might be the way to go as well, although they have decoupled little bit recently as a Canadian dollar hasn’t necessarily strengthen just because of oil. Because of this, I feel that this market is probably more influenced by the US dollar at the moment than the Canadian one.
Short-term pullback?
I have to wonder whether or not this is a short-term pullback. This is because the pair has been in such a bullish move previously that it’s hard to imagine that this is the beginning of some massive turnaround in momentum. With that, I believe that simply waiting on the market to come back down is probably the way to go. All things being equal, I think that this market will ultimately find a way to bounce, but if we do break down below the lows that we made a couple weeks ago, I think that the market will head down to the 1.07 level first, and then ultimately the 1.06 level. However, I have to admit that I believe that selling off is probably the least likely of scenarios.
