The US dollar fell during the trading session on Tuesday to reach down towards the $1.20 level. That being said, the market continues to find a lot of support in that general vicinity, so I am not surprised at all to see a bit of a hammer at this point. It is also worth noting that the $1.20 level is an area that has been important more than once, so the question now is whether or not we are trying to build up some type of basing pattern.
When you look at the chart, especially in the longer-term time frames, the $1.20 level has been very important for quite some time, and it does make sense that we would see a certain amount of reaction to this area, but when you look at the chart over the last several months, we have seen this pair do this more than once, where it simply grinds away and then breaks back down. I do not know if that is what is about to happen again, but clearly the $1.20 level is an area that is going to be crucial, so if we can break down below that level, it is likely that we will drop rather hard.
If we do break out above the top of the candlestick for the trading session on Tuesday, then it is possible that we could go looking towards the 1.2150 handle, an area that has been resistance previously. After that, we also have the 1.22 level that could offer resistance, so I think that the upside is rather limited. This is especially true as crude oil continues to pick up strength, even though the Canadian GDP numbers were a little bit lower than anticipated during the trading day.
I think at best we are looking at a market that is very noisy, and one that is much more likely to give you headaches, as it typically will. If we were to break down below the $1.20 level, then I think we could go looking towards the 1.18 level, as we have seen on the monthly charts. As far as buying is concerned, I do not have any interest in doing so until we break above the 1.24 level at the very least. That obviously would take quite a bit of work.
