The US dollar fluctuated during the course of the trading session on Monday as we have seen a bit of a hesitant market. This makes sense, considering that oil initially spiked after an attack on the Saudi Arabia oil pipeline, but then gave back the gains as it was reported that there was no real danger of disruption. At this point, the oil markets have been overbought, and therefore we could see a little bit of a reversal here.
Furthermore, when you look at this chart, you also have to keep in mind that the 10-year note has been showing rising interest rates for quite some time, and that could make the US dollar a bit more attractive. I do not necessarily think that it is going to be easy to get long here, but if we were to turn around and break above the 50-day EMA, then we could go looking towards the 1.29 level next, followed by the 1.30 level after that. We are at extreme lows, but it is obvious that something is going on with this pair right now. Underneath, the 1.25 level is a significant support level based upon the monthly chart, and if we can break down below the 1.25 handle, the market is likely to drop down a couple of handles rather quickly.
We have a lot of things moving at the same time, but if you can see a fall in oil prices while you get a rise in the 10-year yields, that would be the perfect storm to see this market turn around and try to break the overall downtrend. This is a historically important level, so I am keeping a close eye on the Canadian dollar. The CAD could be the place to be in the short term. The fact that we have formed a couple of shooting stars and a couple of hammers over the last week or so suggests that we are almost certainly at some type of inflection point. The question now is whether or not we will turn around and rally, or if we will break down rather significantly. I get the feeling we are going to know the answer to that question rather quickly, and I am more than willing to take advantage of whatever trade sets up.
