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.
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