The USD/CAD pair had a positive session on Wednesday as the buyers stepped in to support the pair. However, we are still below the 0.98 handle, and as such I still believe that we have broken a significant support level. Nonetheless, we do have the Federal Reserve meeting and announcement later today, and of course as the market expects quantitative easing we could see fireworks.
If the Federal Reserve manages to disappoint the market somehow, we should actually see the US dollar appreciate in value. This will be especially true if there is no mention of further monetary easing. If we do see this and get above the 0.9850 level, I believe that we will see these last few sessions is a false breakout of the larger consolidation area between 0.98 and 1.04 or so. If this happens, I would be buying this pair above the 0.9950 level and aiming 1.04 or nearby.
On the other hand, if the Federal Reserve surprises the market with even more simulative action than expected, we could see this pair really fall apart. I look at a break below the two previous day’s lows as a sign to start selling again. If we do get this pair signal, my suspicion is that 0.95 will be targeted almost immediately.
It's all about the Fed
This pair is highly sensitive to things that go on in the United States. This is because these two economies are so highly intertwined, that the situation in the United States dictates where this pair goes. Think of it this way, we have one country, Canada, that supplies the United States with much of its raw materials. It is because of this that the situation in the United States is highly influential.
This pair does tend to move somewhat counterintuitive, as it will rise on bad employment numbers. However, when it comes to this particular move we think that it should move in tandem with the other currency pairs around the world. In other words, if the Federal Reserve starts easing aggressively, we should see the dollar loses value in this market. On a break of the previous lows from Monday and Tuesday, we think this pair really starts to accelerate to the downside. This would of course be our signal but we think any trade taken in this pair will have to be after the Federal Reserve meeting and announcement.