The US dollar initially tried to rally during the trading session on Tuesday but then fell apart as we have seen a continuation of the overall downtrend. Therefore, I think we will now start to look at the 1.25 level as being in the rearview mirror, so it is likely that we could go much lower. The 1.25 level should be a bit of resistance at this point, so it will be interesting to see how this plays out. Keep in mind that Canada is highly levered to oil, so it is worth paying attention oil as well.
To the upside, I believe that every time we rally there should be a selling opportunity. It is not until we break above the 50-day EMA that is very likely that buyers will come out with any type of ferocity, but at the end of the day one thing that we need to pay close attention to is the fact that the FOMC is on Wednesday as well, so there will be a lot of noise when it comes to the greenback. It comes down to whether or not the Federal Reserve is willing to do something about interest rates, which could have a lot of influence as to where we go next. This is a pair that is in a downtrend, but if we were to continue going lower and, for example, if the FOMC also adds to the “double whammy” of fighting yields in the bond market, that will put more downward pressure on the greenback.
However, if the FOMC ends with the Federal Reserve doing nothing about yields, it is possible that eventually we could see a higher interest rates drive the value of the greenback higher. This is a market that looks very weak, but it is likely to be very quiet during most of the session and then extraordinarily volatile. However, if oil makes a move ahead of time then that could but downward pressure in this market as well. If we were to break above the 50-day EMA, then we could make a move towards the 1.28 level, but that is the least likely of outcomes after what we have seen over the last couple of days.
