By Greg Holden – It appears that an opportunity has presented itself on the USD/CAD currency pair. Given that most banks are closing for the Easter holiday tomorrow, we should experience very high volatility as a result of the low liquidity which we should be seeing. This makes the power of the US Non-Farm Payroll data all the more important.
Now, for some strange reason, the US is forecasting a sharp jump in employment data, despite there being little evidence of such a strong rebound. Even yesterday’s ADP figures showed that the market should be preparing for a minor decline in employment, not a boost. This is the perfect recipe for a disappointment, leading to a sharp decline in the USD against every major currency pair.
I’ve highlighted the USD/CAD pair because it seems to be presenting solid evidence that a major support line is going to be breached, followed by a jump beyond parity.
– The chart below is the weekly USD/CAD chart by ForexYard.
– The indicator provided here is the Relative Strength Index (RSI).
– What this chart shows us is 2 things:
– First: the USD/CAD is clearly in a solid downtrend. The RSI supports this and does not show that it has entered the over-sold territory yet, giving it more room to run.
– Second: the pair is rapidly approaching a significant support line at parity (a 1:1 price, also known as a price of 1.0000). This means we may see some hesitation at this price, and perhaps even a rebound with a target near 1.0400, indicated on the graph below.
– However, given that the US is the only Western bank open tomorrow and is due to disappoint with unrealistic expectations for the NFP, a strong USD downturn may be getting priced in today and tomorrow. This means it may be a good time to jump in on this trend.
– If the pair does breach past the parity mark (1.0000), there is a solid chance that it will continue to drop in a much more rapid manner than it has over the past few months. Meaning that now may be a great entry point for a sell position on the USD/CAD.
– Traders should also manage their risk with proper Stop and Limit orders, on the other hand. As mentioned above, there is a possibility that the pair will bounce back towards 1.0400 before descending to parity so traders should be prepared for this price movement.
USD/CAD Weekly Chart
Forex Market Analysis provided by Forex Yard.
© 2006 by FxYard Ltd
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