The US dollar fell a bit on Wednesday against its northern neighbor, but it still remains very much in a consolidation area. It has been contained within a tight range for the last three weeks or so. This is in sharp contrast to what has been going on in the oil market, which may have left some retail traders confused.
At this point, the US inflation rate is running much hotter than Canada, and it is likely that the Federal Reserve will be much tighter than the Bank of Canada. This is one of the things that is driving the pair at the moment, simple interest rate differential. Furthermore, Canada does have some issues going on as far as closing down the borders, and that is expected to have a bit of an effect on the economy. This is not to say that it is a permanent issue, just something that may be reflected in some of the traits that we have seen as of late.
Notice that the 50 day EMA did offer a bit of support on Wednesday, sitting at the 1.2686 handle. This is a market that does tend to trade quite technically, mainly due to the fact that these two economies are so heavily intertwined. With that being the case, it looks as if we are going to continue to go sideways in the short term, despite the fact that crude oil looks so strong.
The 1.28 level above is still a major resistance barrier from what I can tell, so I will treat it as such. If we get above the 1.28 level, then I would anticipate that the dollar may go looking towards the 1.30 level against the Canadian dollar, and anything above that would be even more bullish. To the other side, if we were to break down below the 200 day EMA, which extensively means the 1.26 level, it is very likely that this market could fall towards the 1.25 handle. At that point in time, I would expect to see a certain amount of support for the greenback. Anything below there then opens up the floodgates to much lower pricing. It certainly looks as if we are trying to coil up for a bigger move, but it is obvious that we just do not have the inertia at the moment.
