That being said, people have to question whether or not the Federal Reserve is really going to tighten monetary policy anytime soon, and it is very likely that there has been a bit of an overreaction. Because of this, we find the USD/CAD pair reaching towards the 1.24 handle, an area that was previous support. Because of this, it is possible that we should see a little bit of “market memory” coming into the picture.
In fact, I think that if we break above the 1.24 handle on a daily close, then it is possible that we could be seeing the beginning of a major trend change. It would be confirmed if we broke above the 1.26 handle, but I do not know that we have the power in this move to continue the same momentum that we have seen recently. In fact, towards the end of the day we did see the markets slump a bit, so that tells me that perhaps this reactionary moves may be turned right back around.
If we do get a little bit of a pullback, it is likely that the market could go looking towards the 50 day EMA underneath, which currently sits at the 1.2233 handle. Breaking down below that level would open up the possibility of slicing through the 1.22 handle, perhaps then reaching back towards the 1.20 level. After all, we have been in a very long term downtrend, so if things change in the short term, that does not necessarily mean that we are going to change at the drop of hat, so I think at the very least the pullback makes a bit of sense.
With all of that being said, if we do break out to the upside this could be a very long term move that we could take advantage of for a huge “buy-and-hold” type of strategy. I think at this point in time we are likely to see a huge opportunity that would probably last several months if not few years. In other words, recent history still favors the downside, so therefore I have to look at it through that prism.
