The upcoming week for me has several possibilities, but in my opinion the USD/CAD pair is one of the more interesting opportunities. The pair formed a hammer two weeks ago, and then broke above on Thursday in order to trigger a buy signal. This pair is also bolstered by the idea that the oil markets going higher really haven’t helped the CAD much, and I think that is very telling. There are a lot of different things going on at once, but one of the more interesting ones is the fact that while the Federal Reserve has been cutting back on quantitative easing, the Bank of Canada flat out suggested that a “rate cut wasn’t out of the question.” With that, expect the interest rate differential between the bonds of both countries to tighten, which means that the US dollar in undervalued at this point.
When you look at the weekly chart, you can see that there is a significant resistance level at the 1.13 area, but this is simply the top of consolidation. I think that we are going to go to at least that level, and that we are going to ultimately break above it, and head to the 1.15 level as it is the next significant resistance area. Click on the chart below to get a better look at the USD/CAD weekly time frame.
