The US dollar rallied a bit during the trading session on Friday as the market has used the 200-day EMA as a bit of a magnet for price. If we can break above the 200-day EMA, then it is likely that we are going to continue to try to rally. It will be interesting to see how this plays out today, because the market certainly did try to take out the 200-day EMA, which is near the 1.26 level. If the market was to do so, then it is possible that we could continue the attempted move that we had earlier this week. This could also come into play with the idea of the US dollar trying to strengthen due to the concerns about growth around the world.
To the downside, the 1.25 level will be support, as it is a large, round, psychologically significant figure and an area that the 50-day EMA is starting to approach. That being the case, I think the downside is somewhat limited, at least in the short term. However, there is a high correlation between what is going on with oil to what happens with the Canadian dollar, so keep that in mind as well. Oil does look very healthy, so we could get a bit of a breakdown. I would not be shorting this market until we break the 50-day EMA and see the crude oil markets rallying quite significantly.
The shape of the candlestick is somewhat positive in the sense that we are trying to break out above the top of the highs of the previous session, which were an inverted hammer. I would not read too much in the Friday session though, due to the fact that the trading community tends to be very quiet late on Friday, perhaps trying to avoid holding onto a position into the weekend. Beyond that, there are some questions as to the trajectory of Canadian economics and various housing issues. I think that in the longer term, technical analysis does in fact suggest that perhaps this is a market that is worth paying attention to. After all, we have recently bounced from the 1.20 handle, which is a major support level going back multiple years.
