The US dollar initially fell a bit during the trading session on Thursday to kick off the session and reach towards the 1.26 handle. However, we have turned around to show signs of support and by the end of the day we ended up forming a bit of a hammer. The hammer of course is a very bullish sign, so that brings more credence to the idea of a potential turnaround. After all, the US dollar is seeing a bit of a resurgence, mainly due to the bond market despite the fact that we have seen so much in the way of bullish pressure in the crude oil market.
As you can see, the market has been in a downtrend for some time but when you look at the monthly timeframe you can see that the USD/CAD pair has a significant amount of support near the 1.25 handle, so the fact that we have bounced from there should not be a huge surprise. Add to the fact that the jobs numbers coming out during the trading session on Friday, we almost certainly will have a significant amount of volatility. With that being said, I would also point out that if we break down below the 1.25 handle, then it opens up a big flush lower. However, we clearly have seen a bit of a pushback in this general vicinity.
On the other hand, there is a significant and obvious uptrend line just above. It looks like we are trying to do everything we can to break out to the upside and clear it, but the 50 day EMA also backs up this downtrend line, so at this point in time it is likely that we will see a difficult path forward for the bullish traders, but if we do break above that downtrend line, that is very likely to open up the possibility of a move to the 1.29 handle, possibly even the 1.30 level after that. The 1.30 level has the 200 day EMA sitting at that general vicinity, so that would be a major barrier for the buyers overcome. However, we need to look at this one step at a time, and therefore we need to look at that downtrend line and the 50 day EMA as the first barrier. However, we are still very much in a downtrend so we need to keep in the back of your head that we could see a significant break down.
