- The USD/CAD continues to hang around the 50-Day EMA against the Canadian dollar, focusing on the $1.35 level.
- Ultimately, this is a market that is grinding away to reach the previous head and shoulders pattern, which could have a significant amount of resistance built into it.
- If we were to break above the 1.40 level, that would be a huge victory for the greenback, as it could open a floodgate of Canadian dollar selling.
In the short term, it looks like oil is trying to recover, which of course helps the Canadian dollar as it is Canada’s biggest market. Furthermore, Forex traders do tend to treat the Loonie as a proxy for the oil markets, so I suspect we have a situation where this will probably move in direct opposition to where the oil market is going.
There is a Significant Lack of Liquidity
It is the week between Christmas and New Year’s Day, so there is a significant lack of liquidity, and most people with sizable accounts are not bothered with the markets right now and are adjusting for tax harvesting strategies, etc. In that environment, I anticipate that we will see the market do very little, with the 1.35 level acting as a bit of a magnet for price. Keep in mind that the jobs number in early January will more likely than not be the first bit of significant news that people will trade-off. Because of this, I anticipate that we will see a lot of nothing between now and then.
However, with the lack of liquidity, there does come the possibility that some piece of news hits the wires that cause the markets to go haywire. After all, it takes a lot less to move the markets this time of year than it does most other times. Toronto area continues to suffer from a housing bubble popping, so that does have a little bit of negativity added to the Canadian dollar, and Vancouver finds itself suffering a lot of the same problems. Because of this, I do think that eventually, the greenback will break out to the upside, but we could see the occasional dip all the way down to the 1.33 level that people will be looking to pick up as value. As the global economy slows down, it will certainly influence commodity currencies such as the Canadian dollar.
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