The USD/CAD pair fell during the session on Tuesday, as the world assumes that the Federal Reserve will go ahead and either extend its length easing, or perhaps even get involved in Quantitative Easing 3.
Obviously, the oil markets can have a great affect on this currency pair as well. It isn't the oil markets that are pushing around at the moment however, and I firmly believe that this is all about quantitative easing. Because of this, I believe that the currency pair will show its true colors after the Thursday FMOC announcement. However, it is obvious that the market expects more "sugar" from the Federal Reserve.
The fact that we broke down below the 0.98 level is significant. In fact, it was the bottom of a massive consolidation area that ran all the way back up to 1.04 or so. Because of this, basic technical analysis dictates that we should see prices of 0.92 before it's all said and done.
After Thursday, we should have clarity
Once we get through the headline event on Thursday, it should be rather clear which direction this pair heads for the intermediate term. Nonetheless, I still think that we will eventually fall now that we have close well under the 0.98 handle. The Federal Reserve has shown its proclivity in the past to give in to whatever the market wants, so to think that it wouldn't do it now is probably a bit naïve. At this point time, the real question is how much will it do?
Of course, if this pair does manage to get above the 0.9950 handle I would have to suggest that we go back up to 1.04 although in a choppy manner. After all, you do have to have both cases laid out before you so that you can have a clear trading plan. As for trading this pair now, I see no reason to buy it. After Thursday, the Federal Reserve could very well remove all doubt as they blow up the Dollar yet again. More easing pushes money into commodities, and this of course will benefit the Canadians.