USD/CAD had another tight day on Friday as the market ended up down slightly. The pair will follow the oil markets over time, and with those markets currently range bound, it makes sense that the Canadian dollar can’t decide where it wants to go. The 0.99 – 1.01 levels are the boundaries of massive support in this pair, and the levels should continue to hold unless the oil markets can break out to the upside, causing demand for the Loonie. The market is still very nervous, and this always pushes demand for the Dollar overall.
The level above at 1.03 is minor resistance, and we think that it can be somewhat easily overcome, but the real test would be at the 1.07 level, as it would signify a massive breakout again. The pair would more than likely do this on bad oil prices more than anything else at this point in time. The lack of volume going forward due to the holiday season could exaggerate moves at times, so be mindful of that. However, the pair itself looks set for more of the same sideways and volatile grind going forward.
The breaking of the 1.07 level has us holding onto the buy side of this pair for some time, but to think that it will happen before 2012 might be asking a bit now. The volumes in several of the markets we follow is starting to dry up, and this is normally a sign that a lot of the big players in the markets are starting to wrap up for the year.
Looking at the near-term, we think selling between 1.05 and 1.07 is the prudent thing to do, and buying just above parity will serve you well for the time being. Of course there is always the chance of the above mentioned break out to either direction and those opportunities would present clearer trend-following trades going forward in what has been an overly choppy marketplace. The oil market will have to be watched, as the $100 level in Light Sweet Crude is the start of massive resistance, and this is the biggest thing working against the CAD at the moment. A break ing down of that market will send this one much, much higher.