The US dollar has rallied significantly during the trading session on Tuesday to reach towards the 50 day EMA again. This is an area that has been resistance previously, and therefore it is not overly surprising that we stopped here. Having said that, we did break above the top of the shooting star from the previous session so that in and of itself is a relatively bullish sign. If we can continue to go higher from here, perhaps breaking above the top of the daily candlestick on a daily close, then we could go quite a bit higher.
In fact, I think we do get that breakout we will probably go looking towards the 1.2750 level, and then possibly the 1.29 level. This would obviously be in conjunction to the crude oil market falling apart, as the Canadian dollar is used as a proxy by Forex traders globally. All that being said, the market still has formed a “higher high”, so even though this looks somewhat bullish over the last couple weeks, we do not have confirmation quite yet. If we do get that confirmation, we could be looking at a multi-month trade.
Looking at the monthly charts, the area just below is rather supportive, so if we are going to see a significant turnaround, it is possible that it would be in this general vicinity. I think the next several weeks are going to be very noisy, and of course we have to wait on the OPEC meeting at the end of the week to determine whether or not there is going to be a continuation of production cuts. If so, that could work against the value of this pair, but if OPEC decides not to continue production cuts, that could drive down the price of oil, which of course has an inverse correlation to what we see here. With that in mind, you need to be very cautious as we have a major event at the end of the week that would continue to cause major volatility. With this, I think that we are going to have to be patient, but as things stand right now, we are still in a downtrend and that is probably something we should be paying the most attention to. I anticipate that we may have more clarity at the beginning of next week, but until then you should be cautious.
