The US dollar has rallied significantly against the Canadian dollar during the trading session on Tuesday, to reach towards the 1.24 handle. This is just a continuation of what we have seen over the last several weeks, and it should be noted that the greenback seems to be picking up a bit of momentum against multiple currencies, not just the Loonie.
This is interesting, considering that the oil markets have been so strong. That being said, it does not necessarily mean that the Canadian dollar has to rally, just that it typically will when those oil markets are so strong. Furthermore, one has to wonder how much the lack of being able to completely reopen in Canada is coming into the picture? Nonetheless, one thing is for sure, we are starting to see the greenback either recover, or flex its muscles for a longer-term move.
Looking at this chart, for me it is obvious that there is a major barrier between the 1.25 handle and the 1.26 level on the chart. If we were to break through all of that, then I think that this market probably continues to turn around and change the entire trend. At that point, it becomes more of a “buy-and-hold” scenario. Nonetheless, we have a lot of work to do before that happens. Looking at this chart, you can see that we have been in a long running downtrend, and at this point in time it makes quite a bit of sense that the proof still has to be laid out for the case of the sellers. Yes, it has been a nice bounce so far, but we have not actually change anything from a longer-term point of view. This is a chart that is most certainly worth paying close attention to due to the fact that the main driver of it seems to be diverging from what we are seeing now. Beyond that, you also have to keep in mind that the commodity trade is by far one of the biggest drivers of markets in general right now, so if we start to see “cracks in the ice” when it comes to commodity currencies, that is most certainly something worth paying attention to as well. In other words, we are quite ready to start going higher for a longer-term move at this point, but this could be a signal for the rest of the year if we get it. On the other hand, we could simply break down below the 50 day EMA and go looking towards the 1.20 handle again.
