The USD/CAD pair initially tried to rally during the session on Tuesday, but pullback to crash into the 1.25 handle. This is an area that’s been a bit of a magnet for price, as it is a large, round, psychologically significant number. However, I see the true support being down at the 1.24 handle, so I think that is the area that we truly need to pay attention to. When you look at the chart attached, you can see that there is a bit of a descending triangle being formed based upon the downtrend line and the 1.24 level offering support. With that being the case, I look at this and it suggests based upon measurements that we will more than likely head towards the 1.20 level.
This is a bit convenient for me, because I see the 1.20 level as massively supportive. In fact, that support extends all the way down to the 1.18 level, and as a result I find it very difficult to believe that this market will break down below there. However, there are some things moving in other markets that could influence our next move.
WTI Crude Oil
I believe that the WTI Crude Oil market is finding support closer to the $48 level. Because of this, it should continue consolidating and therefore the market would bounce from here and send oil prices higher. With that, the Canadian dollar should appreciate, and that could be the catalyst for the market to break down in the USD/CAD pair.
On the other hand, if we break above the downtrend line of the descending triangle, that of course is a very bullish sign. At that point in time, I believe that the market will then head to the 1.30 level, which is my longer-term target. That area is massively resistive in general, mainly because it’s where we ran into a bit of a brick wall during the financial crisis. I think that any pullback at this point in time is simply the market trying to build up enough momentum to finally break above there. I am very bullish of this pair but realize that a short-term selling opportunity may present itself.
