The USD/CAD pair did very little during the session on Tuesday as we flirted with the 0.98 handle. This area is very interesting to me as it is the bottom of a massive consolidation area that extended all the way to the 1.04 level. This area prices in check well over a year, and the fact that we broke down below the 0.98 level suggests that we will see lower prices in the future.
This market looks like it is simply trying to retest the area as resistance now, and if that's the case it is simple and straightforward technical analysis. One of the biggest drivers of this pair as you well know is the oil markets, and those are currently being manipulated by rumors. The oil markets have fallen prey to suggestions that the Strategic Petroleum Reserve may be released in order to drive prices lower. Even if that happens, let's look at history: the last time we saw the SPR release, it drove down oil prices a total of eight days.
Because of this, we could get a spike in this pair, but in reality it should be short lived. Quite frankly, the problems in the Middle East are going anywhere anytime soon in this should continue to put pressure on oil prices. If that does happen, the Canadian dollar should continue to do well over the long run.
0.92 is the target
The technical analysis work that I have done in the past on this consolidation area suggested that perhaps we could run as low as the 0.92 level. I still think this is very doable, as the Federal Reserve is working so hard to kill off the US dollar.
Oil would have to have a bit of a spike in order for this to happen, so it may or may not be a quick move. But nonetheless, you cannot deny the fact that the 0.98 breaking down is significant. I don't necessarily think they were going to see some type of meltdown, but we could see a slow, gradual grind in favor of Canada.