It may be easier to simply short this market on signs of exhaustion.
The US dollar did have a slightly positive session during the day on Monday against the Canadian dollar, but ultimately, we are sitting just below the 50 day EMA, and it looks as if we are going to continue to go back and forth underneath there to determine the next move. A move above the 50 day EMA of course opens up the possibility of a bit of a correction, as the market has been selling off for some time.
Keep in mind that the Canadian dollar is highly influenced by the crude oil market, and that of course is a market that has been tightening up as of late. Ultimately, this is a market that I think will eventually have to come to some type of decision on the next move, but it is obvious to me that the traders out there have a lot to think about. After all, the crude oil market is one thing, but we also have the bond markets which are seen yields rise in America, providing upward pressure on the greenback.
I think at this point in time, if we break down below the last couple of trading sessions, then it is likely that the market goes looking towards the 1.24 level underneath. However, breaking above the top of the 50 day EMA opens up the possibility of a bigger correction, perhaps reaching towards the 1.2750 level, and then possibly even the 1.28 level. That of course is an area that would attract a certain amount of attention due to the previous selling, but the 200 day EMA should go reaching towards that area. All things being equal, this is a market that I think will continue to see a lot of noise but at the end of the day we are in a downtrend, so it is much easier to simply short this market on signs of exhaustion.
If we were to turn around a break above the 1.28 handle, then I believe that the market is ready to continue going higher. If we break down below the 1.24 level underneath then it possibly sends this market down to the 1.20 level underneath which has been supported previously, and therefore that is what we should be aiming for on a significant break down.