The USD/CAD pair fell during the session on Monday, but managed to bounce in order to form a hammer by the end of the trading day. Interestingly enough, the oil markets looked relatively weak on a day that a massive tropical storm was heading towards many of the major refineries in the Gulf of Mexico. In fact, the storm is expected to be a level I hurricane by the time it hits land, and this should have in fact on refinery capacity.
However, it looks like the market may be read pricing the idea of quantitative easing coming out on Friday from the United States. With the Jackson Hole, Wyoming meeting on Friday that features a statement by Federal Reserve Chairman Ben Bernanke still lurking in the background, the markets may actually start to put a bid in for the US dollar as many are starting to rethink whether or not quantitative easing will be announced this week.
This pair is highly sensitive to this kind of action, as the Canadian economy is so dependent on the United States for its exports. In fact, Canada exports over 85% of the goods it sends out of the country to the Americans, and of course what happens in America is massively important to Canada as a result. With this being said, if the Dollar starts to strengthen we could see a lot of momentum start back up.
Looking at the charts, we are actually at the bottom of a larger consolidation area that extends from 1.04 to the 0.98 level. If we bounce from here, we would simply be continuing the consolidation that the market has been in for several months. In fact, this has been the bottom of the range for the last year, and as not much has changed it is hard to think that the currency should be priced any differently.
On a break of the highs from last week, we are more than willing to go long as it would show a bit of a momentum shift in this market. Obviously we could have fairly tight stops as the 0.98 level must hold as support. As for selling, we will not do it until 0.98 gives way on a daily close.