The US dollar pulled back initially during the trading session on Friday but turned around to show signs of strength as we hang about the 1.26 handle. Perhaps even more importantly, the 200-day EMA sits right there as well, so I think it makes sense that we would hesitate in this general area. If we can break above the 1.26 level with decided momentum, I think it likely that the US dollar would continue to rally against the Canadian dollar, perhaps in a much bigger move from a longer-term standpoint.
On the breakout to the upside, I believe that we would go looking towards the 1.30 handle, perhaps even higher than that. This is a market that is highly correlated to the crude oil market, which has been seeing quite a bit of its own issues as of late. Nonetheless, as we start off this week, it will be interesting to see how we behave due to the fact that OPEC+ continues to struggle with some type of production schedule, and the previous week featured a significant drop in gasoline withdrawal from the US inventory. If that is going to be the case, then it is perhaps a signal that oil has topped.
To the downside, if we were to break down below the 1.25 handle, then it would be a very negative turn of events, reaching down towards the 50-day EMA. We are in a longer term downtrend over the last several quarters, so if we do break out to the upside it could be a significant trend change. When you look at the longer-term monthly charts, the 1.20 handle has been crucial more than once, and I think it makes sense that we have seen a nice push higher from there. Ultimately, this is a market that I think will continue to be noisy, but the next week or so will probably be crucial as to where we go longer term, so we need to pay close attention to how this plays out. As things stand right now, we are in the precipice of a major trend change, and this could end up being a very strong opportunity.
