All currently, this is a market that I think will continue to see a lot of noisy behavior, but we are most certainly in a major downtrend still, despite the fact that we have seen a nice little bit of a rally.
With all of that being said, the market is likely to see the 50 day EMA underneath as potential support, which is currently at the 1.2253 handle. That is an area of clustering that we had seen before, so it is worth paying attention to. At this point, it is a bit difficult to determine whether or not the US dollar has rallied enough to build some type of base, or if we have simply paused a bit. The upside certainly has a lot of resistance near the 1.25 handle, which I believe extends all the way to the 1.26 handle. Breaking above there would also break above the 200 day EMA and could send this market shooting straight up in the air. There is a real argument for the market finding the 1.20 level underneath as a hard floor, as it is important on the monthly charts. The question now is whether or not that is actually holding?
It will be interesting to see what happens next, because I do believe that we are getting ready to make a rather big move. If we break above the 1.26 handle, that could very well kick off a move that would last for at least a year, perhaps even longer. On the other hand, if we were to break down below the 1.20 handle, then it is very likely that the market will go looking towards the 1.18 handle, and then possibly even the 1.10 level.
All of that being said, I do believe that we are getting ready to make a huge multi-quarter move, but in the meantime, I think it is more important than anything else to simply watch this market, because this could give us an idea as to what happens with the greenback, and then by extension the overall Forex market itself. Unfortunately, a lot of people do not pay attention to the Canadian dollar, but it is important as it is highly correlated to crude oil. If that higher price in crude oil cannot lift the Canadian dollar to a level below the 1.20 handle, that speaks volumes.
