The US dollar rallied again on Wednesday, as we continue to see the greenback rally against almost everything. Ultimately, the West Texas Intermediate Crude Oil market pulled back significantly on Wednesday, so that has put downward pressure on the Canadian dollar. The market is threatening the 1.26 handle, and it is an area that I think a lot of people will pay close attention to as it previously had been supportive. The question now is whether or not we can continue to go higher?
I think a lot of this will come down to the interest rate differential between the United States and Canada, as well as the crude oil market itself. Ultimately, I think what we have here is a situation where the US dollar is trying to decide whether it has bottomed out against the Loonie, because underneath at the 1.20 level, an area we had bounced from previously, is a major support level on the monthly charts. With that in mind, I like the idea of letting the market tell you what it wants to do, but without a doubt there is a significant amount of upward pressure just waiting to happen, due to the fact that we are now solidly above the 200-day EMA, and now are above the ascending channel that we had been in previously. Breaking above the top of the channel and finding it supportive typically will lead to further bullish pressure.
If we were to break down below the 1.25 handle, then I think it is possible that we could see this market go quite a bit lower, but right now it does not look likely to happen, especially considering that we are closing towards the top of the range for the session. Because of this, it is very possible that we could see this market try to get towards the 1.20 handle, but it is not going to be easy. Anybody who has traded the USD/CAD pair probably understands that this pair is almost never easy, so it should not be a huge surprise at all at this point. More of a grind is probably what I would expect.
