The Canadian dollar rallied a bit during the trading session on Tuesday as we reach towards the 200-day EMA. Furthermore, the 1.26 level is an area that I have been paying close attention to for a while, and if we can break above there, then it is possible that we can continue the overall uptrend that we have been in for a couple of months. This will be completely confirmed if we can break the 1.28 handle, because it would be an extraordinarily bullish sign.
To the downside, we have the 1.25 handle and the uptrend line that is coming into the picture. Do not forget that late during the trading session on Wednesday we have the Federal Reserve statement and press conference, so it does make sense that we would see a lot of volatility late in the session. If we were to break down below the uptrend line, then the market will probably test the 50-day EMA. If we break down below there, then it is likely we will go looking towards the 1.20 handle underneath. It would probably coincide with a lot of US dollar selling in general, and the strengthening of crude oil at the same time.
Speaking of crude oil, it is trying to stabilize a little bit in order to push to the upside, and if it does in fact happen, that might be enough to break this market back down. We are most certainly on the precipice of a lot of confusion right now, as the Bank of Canada has suggested that they are tapering bond purchases, while we are waiting to see what happens with the Fed. The fact that the BOC is stepping away from bond purchases is a little bit counterintuitive to what we are seeing here, but at the end of the day price is truth. With that being the case, I am waiting to see how this plays out at the end of the trading session on Wednesday to make a more informed decision, which should lead the market for the next several hundred pips. We have made one heck of a turnaround over the last several months, so the question now is whether or not we can continue the upward momentum.
