USD/CAD had a relatively quiet day on Monday. The pair is highly sensitive to the oil markets as the Canadians export so much to the United States. The pair is often used as a proxy for oil by currency traders and as the oil markets were back and forth – so was this pair.
The biggest problem with trading this pair is that the two economies are so intertwined. The Canadians export over 80% of their goods to the US, and as the US economy goes, so does the Canadian one eventually. However, the pair does move quite suddenly once it breaks out of the common consolidation that this pair sees.
Currently, the 0.99 to parity level is massive support for this pair. As long as this pair can stay above that level, the bias is going to be to the upside over the long run. The US dollar and its “safe haven” status will continue to favor the Dollar as long as the world is so concerned with the situation in Europe, and the job markets continue to be soft in the USA. The trading world will buy Treasuries when the recessions hit, and as a result will be buying Dollars.
There is massive resistance in the 1.05 area, and that is where we will need to break through in order to get a serious rally going in this pair. Although we feel that the pair will have an upward bias, it looks like this pair could be range bound for the foreseeable future. Perhaps we will have to retest that area several more times before escaping the range.
The Monday candle is a hammer, and is sitting just above the 1.01 level, which has shown us some minor support lately. Although we don’t think of it as a major area, the breaking to the upside from the Monday range will be a very bullish sign as the buyers will have clearly been stepping in at that level. We don’t like selling, at least until we break below the 0.99 level, a couple of hundred pips below where we sit presently.