I do think that oil selling off the way it has will continue to be a major factor in this market, so I do think this is a situation where we could continue to see a lot of volatility.
- The USD/CAD has rallied significantly during the trading session on Wednesday, to break toward the 1.38 level yet again.
- Ultimately, this is a market that continues to see a lot of noisy behavior, as the US dollar has shown quite a bit of strength lately.
- As we see crude oil markets break down significantly, it does suggest that the market could continue to see a lot of negativity with the Canadian dollar.
Having said that, we are approaching an area that is significant resistance, therefore I don’t think it’s going to be easy to break out above here. However, as traders are worried about contagion from Credit Suisse, this might be the type of noise that could send this market much higher. If that were to be the case, then I think the 1.40 level above would be something worth paying attention to as it is a large, round, psychologically significant figure, and an area that has previously brought a lot of selling.
If we were to break above there, then it’s my opinion that we will probably go look into the 1.4250 level, perhaps even higher than that. Underneath, the 1.37 level should continue to be supported, right along with the 1.36 level. I do think that oil selling off the way it has will continue to be a major factor in this market, so I do think this is a situation where we could continue to see a lot of volatility, so I look at this as a situation where you are a buyer of tips, and it is probably worth noting that the chart has formed a massive “W pattern”, which suggests that the US dollar buyers are going to continue to be very aggressive.
In this situation, the “measured move” from the W pattern suggests that on a breakout the market could go roughly 500 pips, maybe somewhere around the 1.4250 level. As far as selling is concerned, I would need to see the oil markets recover, and of course the US dollar struggle in general. Take a look around the world and see what the US dollar is doing, it will probably give you a bit of a “heads-up” as to where this market is going next but right now it certainly looks as if the buyers are starting to flex their muscles yet again.
