The US dollar went back and forth during the trading session on Tuesday as we continue to sit just above the 1.20 handle against the Canadian dollar. This is an area that obviously has certain amount of psychological importance attached to it, but when you look at the longer-term chart, you can also see that it is an area that has sparked a bit of buying in the past. So, the question now is not so much as to whether or not we are at a significant level, but whether or not it can hold.
So far, it looks like we are trying to form some type of bottoming pattern, but I would not be a buyer based upon what I have seen up to this point. The 1.20 level itself is not reason enough to go long, but I do think that it could cause a certain amount of support the people may cling onto. We could even get a bit of a bounce, but at the end of the day there is so much negativity when it comes to the greenback that it is very difficult to imagine that scenario lasting.
Because of this, I think we will continue to chop back and forth in this sideways behavior that we have seen, perhaps with a slightly negative bias. On a short-term pop, I would be more than willing to fade the first signs of exhaustion, as I truly believe that this pair is one that has so much momentum built up in it that eventually we could break down below the 1.20 handle. If and when we do, then I would anticipate a rather sharp move lower.
To the upside, if we broke above the 1.22 level, then we would probably go looking towards the 50-day EMA, followed by the 1.24 handle. I do not necessarily think that is going to happen anytime soon, but it is a possibility that you need to keep in the back of your mind. Because of this, I think that the market is one that you need to be a little bit cautious with, but given enough time, I do think that we would see some type of decisive candlestick that defines where we go next. Currently, I still favor the downside, but in the short term, it is very likely we will see more sideways action than anything else.
