The US dollar initially tried to rally during the trading session on Wednesday but gave back the gains, as it looks like we are hell-bent on testing the 1.20 level. This is an area that is a large, round, psychologically significant figure, and I think that there will be a lot of interest in this market around this general vicinity. This is an area that will attract a lot of attention, and if we can break down below there, it would be a significant amount of trouble.
To the upside, the 1.22 level is significant short-term resistance, so I think that if we rally from here, it is likely that we would see sellers jumping into this market. When you think of the US dollar, you also have to understand that for some time we have seen a bit of weakness, so it does make sense that the Canadian dollar has been strengthening. After all, the market has been favoring commodities in general, and Canada represents crude oil to Forex traders. Furthermore, the Bank of Canada has suggested that it is going to start tapering its bond purchases, suggesting that the CAD should continue to strengthen against most currencies.
Keep in mind that this pair does tend to be very choppy to say the least. This makes sense as we continue to see this market act like two economies that are number one trading partners of each other, which of course they are. With that being the case, there are not only speculators, but there are a lot of forced and necessary moves in this market due to business being conducted across the border.
When you look at the monthly charts, if we were to break down below the 1.20 handle, then it is likely that we go looking towards 1.18 level next, which is an area that had been supportive in the past as well. That being said, when you look at the totality of the market, it is probably going to continue to see downward pressure if we break down below the 1.20 handle, and could even open up the possibility of a move down to the 1.10 level over the longer term. As far as buying is concerned, I do not necessarily have any interest in doing so anytime soon.
