The US dollar rallied a bit during the trading session on Friday but continues to see a lot of resistance near the 50-day EMA against the Canadian dollar. It is currently sitting at the 1.26 level, and as a result it is likely that we will see sellers come back in every time we get to that area as we have seen over the last couple of weeks. The 50-day EMA is slumping a bit at this point, perhaps reaching towards the 1.25 level given enough time.
Keep in mind that the Canadian dollar is highly levered to the crude oil market, so if oil suddenly does take off to the upside, that could send the market much lower. At this point, the market looks as if it is trying to get down to the previous lows, near the 1.24 handle. That being said, the market is a little bit overextended to the downside on the longer-term, but I think it is going to be interesting to see how this all plays out. A breakdown below the 1.24 level could open up a move to the 1.20 level, which is significant support underneath there as well.
On the other hand, if we were to break above the 50-day EMA on a daily close, then we may make a move towards the 1.27 handle, followed by the 128 handle, and then the 200-day EMA. If we break above there, then it is likely that we would see a massive move to the upside as this would be a bit of a trend change. Ultimately, that would be a nice move, but I think we would need to see a major shift in attitude to make that happen.
The idea is that we have recently seen massive concern about inflation and the reopening trade, which will demand a lot of crude. Furthermore, the Canadian economy has fired off quite a few very strong economic figures for some time, so therefore the Canadian dollar has been a huge leader as of late. That being said, if oil does take off, it will be yet another reason to see this market rally. However, you should also keep in mind that US yields have been a bit of an issue, so if they start to spike that could be one of the things to turn this around.
