People were whispering about the idea of the Federal Reserve tapering its bond purchases, which is absolute nonsense. However, it was probably the excuse this pair needed to bounce the way it has. The reality is that the 1.20 level of course is a large, round, psychologically significant figure that also has a certain amount of historic significance to it as well. If the market were to break significantly below this barrier, the bottom would fall out and we could be looking at 1000 pips.
That being said, a lot of this comes down to the crude oil markets as well, which of course are very bullish, and it is very likely that we will continue to see buyers jump into the market and push crude oil higher. The market is likely to see the Canadian dollar in favor overall, as we have seen for quite some time. However, Friday could be a very noisy trading session as we get employment figures from both countries at the same time.
Recently, the Bank of Canada has suggested that they were going to start tapering, and that of course is very bullish for the currency. That being said though, the market is likely to see a lot of support at the 1.20 handle, so I do not necessarily believe that we break through it during the day on Friday. However, if we get a daily close below there, I am more than willing to start shorting because of the risk to reward ratio is so strong.
To the upside, the 1.22 level is a resistance level that traders will have to deal with, especially as the 50 day EMA is starting to reach towards that same area as well. If we were to break above there, then it is likely that we would see the 1.24 handle offer a significant amount of resistance as well due to the fact that it has been massive support in the past and where we broke down from previously. With this, I remain bearish, but I need to see some type of exhaustion to get short.
