The USD/CAD pair fell originally during the week previous, but then found some footing and rose rapidly as the Dollar picked up a bid against most other currencies later in the week. The oil markets often lead this pair around as Canada exports a lot of it to the United States. The Iranians have shocked the oil markets a few times recently with threats of the Strait of Hormuz being closed. Roughly 60% of the world’s oil supply runs through that waterway, and traders bid up oil as a result before asking any serious questions.
The oil markets are starting to realize that perhaps it is an empty threat as the US Navy is sending more carriers to the region to thwart any attempt to close the waterway. The US has explicitly stated that the move would be an act of war, and this would lead to the Iranian Air Force ceasing to exist in less than a week. The Iranian Navy would be at the bottom of the Persian Gulf quicker than that most likely. Because of this, there is almost zero chance that the Iranians will do this, and in fact they have already been working through back channels to calm the situation down.
The charts have been choppy, but with an upward bias. Essentially, the only reason for this chart to fall has been the surge in oil prices, something that looks to be subsiding a bit at the moment. The weekly candle is a hammer that extends down to the 1.01 level – showing that area as being very supportive. The 1.03 and 1.04 levels above are resistive, so barring any shocks, this pair will struggle to gain, but we believe over time they will. The choppiness should continue, which quite honestly is the norm of this pair anyway. With this in mind, we are ready to buy pullbacks as the oil markets cool off. Of course, we will have to watch the Light Sweet Crude markets for any sudden moves, and as long as we can stay under $105, we feel buying this pair should be the way forward.