The US dollar rallied significantly during the trading session on Wednesday as we continue to look at the 1.20 level underneath as significant support. That is a large, round, psychologically significant figure, and that attracts a certain amount of attention based upon that alone. The fact that we are closing towards the top of the candlestickis a very good sign that we could see a little bit of a bounce.
Just above, the 1.22 level is an area that I think a lot of people will be paying close attention to, as it has offered a bit of resistance over the last couple of weeks. Furthermore, every time we reach a new “handle”, I think that there would be people looking to get involved, taking advantage of the longer-term downtrend. Above the 1.22 handle, there is likely going to be significant resistance at the 50-day EMA, which is currently at the 1.2321 level. After that, the 1.24 handle comes into play, as it was previous support. A move towards that area would be a nice buying opportunity on signs of exhaustion, as it would show a continuation of the longer-term trend. That being said, if we break above that level, it could be a very bullish sign, but we have to wait and see how things play out at that point.
What is interesting is that the Canadian dollar fell in strength at the same time that we have seen a lot of bullish pressure in the oil market, so this is probably something a little more related to the greenback than anything else. The size of the candlestick is a little bigger than the last few days, but when you look at the last month, there is nothing particularly exciting about it. In fact, I am waiting for signs of exhaustion so I can start selling this market, but if we were to break down below the 1.20 handle, I would become aggressively short, as we more than likely will see this market looking towards the 1.18 level underneath. That is an area that has been important on the monthly charts, so it is worth paying close attention to the Canadian dollar there as well. For what it is worth, the Bank of Canada has suggested that they are going to start tapering, but now the Federal Reserve is starting to hint towards the same thing.
