USD/CAD Puts in a Bottom

Mid-September through mid-October proved to be an extremely volatile period for the USD/CAD, as the pair broke its long-term downtrend and moved aggressively above parity. $1.0657 was the high of that initial thrust. Shortly thereafter, however, the pair underwent a drastic correction, trading down to as low as $0.98912 (10/26/11). Since hitting that number, the USD/CAD has gained 2.9%, signaling that a short-term bottom may have been hit. As the six month daily chart below shows, that low corresponded exactly with the pair's ascending trend line, which began in early September (marked “1” on chart). That confirmation established that the upward trend is still intact and that there may be some more room to the upside. The USD/CAD has exploded above parity today, moving from an intraday low of $.99731 to its current value of $1.0183 (+1.8%). Trend line support now sits above $1, and a move back below $0.99 would indicate a potential breakdown. Choppy trading is likely to ensue as the pair moves back within the range which contained it for most of 2010 ($0.9929 to $1.0853).. The immediate support levels for the USD/CAD come into play at $0.99, $0.9780, and $0.9725. Beyond this, there is little support until $0.95 (the July low sits at $0.9406). A move above $1.02 (marked “2” on chart) indicates that the USD/CAD could be ready for the next wave higher, as buyers move in and shorts get squeezed out. The target for such an event is $1.07 followed by $1.0850. The immediate resistance levels for the USD/CAD are currently at $1.0430, $1.05, and $1.0657. The daily fluctuation average (14 day) range remains elevated based on historic norms, currently at 129 pips per day. Beginning in mid-2010, the average daily range had previously been at less than 100 pips.

Figure 1: 6 month USD/CAD Daily Chart