The US dollar initially tried to rally during the trading session on Tuesday, reaching towards the 1.2650 level before pulling back again to show signs of negativity. Keep in mind that the Canadian dollar is highly sensitive to the crude oil markets, and they have been very active as of late. As the crude oil markets rally, this market will fall as Canada is the biggest exporter of crude oil into the United States. Having said that, the United States produces quite a bit of its own crude oil, so the correlation is not as strong as it used to be.
The shape of the candlestick does suggest an “inverted hammer”, which can be either bearish or bullish depending on which direction we break. Think of it this way: if we turn around and break to the upside, it would show that the sellers have lost the upper hand, and the buyers have come back in and truly pressed the issue. If we do break to the upside, there is a significant amount of pressure near the 1.27 handle, an area that we have failed at multiple times. Furthermore, we have a downtrend line that people will be paying close attention to, and the fact that the 50-day EMA is walking right along with the downtrend line only adds more to the potential resistance in that general vicinity. If we did break above that, then the market is likely to go looking towards 1.29 level next.
Underneath, we have a massive amount of support that extends all the way down to the 1.25 handle. This is an area that is seen on monthly charts, and we are going to need to see a massive amount of energy to break down through there. That would coincide with crude oil markets exploding to the upside, and I think that we are getting closer to the end the bullish run in crude oil than the beginning. After all, the oil markets have been somewhat parabolic, and one would have to think that a lot of the recovery trade has been fully priced into the crude oil market, and by extension, the Canadian dollar. If interest rates continue to rise in the United States, and Jerome Powell suggested that he was not concerned about the rising interest rates, that could also work to the upside. I suspect more than anything else we will have a lot of choppiness in the short term.
