The US dollar has broken down significantly against the Canadian dollar during the trading session on Thursday, as we continue to see the crude oil markets rally in general. The Canadian dollar is a proxy for crude oil obviously, and furthermore we have seen yields in the United States drop a bit so that does help the idea of the US dollar falling against the Loonie. Having said that, the market clearly has a significant amount of support from a psychological standpoint near the 1.25 handle, which shows up on the monthly charts. In fact, if we were to break down to a fresh, new low, we could see this market reached down to the 1.20 handle given enough time.
All things been equal, this is a market that I think continues to show a lot of downward pressure, but at the end of the day we are at such a crucial level that I think we could probably see increase volatility. For what it is worth, other pairs that I follow such as the EUR/USD pair, the GBP/USD pair, and the AUD/USD pair all are showing signs of the US dollar showing signs of weakness. The question now is whether or not the greenback weakness continues into the weekend?
The fact that we are closing towards the bottom of the range of the candlestick does suggest that we probably go further. However, there is a significant amount of support just below, so I do not necessarily think that this is going to be easy to make happen. To the upside, if we were to break above the downtrend line, we would then test the 50 day EMA. Breaking both of those opens up the possibility of the US dollar going towards the 1.30 level above. If we were to break above there, then I believe that the entire trend would be reversed.
One thing I think you can count on is a lot of noise, but it is interesting that we had seen several neutral candlesticks in a row followed by this negative candlestick. However, you can see just how bullish we were in the bounce from the 1.25 handle. I believe that we should have some answers in the next couple of sessions going forward and therefore it could set up for a nice longer-term trade.
