The US dollar initially tried to rally against the Canadian dollar on Wednesday but gave back the gains to show signs of weakness. Nonetheless, there is an uptrend line just below that coincides quite nicely with the 1.25 handle. Because of this, it is not a huge surprise that we sat here to show signs of life. The market continues to squeeze between the 50-day EMA underneath and the 200-day EMA above, so the fact that we have been very noisy in this area should not be a huge surprise.
The market breaking out of this region could open up another trading opportunity, and although the CPI numbers came out during the day on Wednesday, the market did not seem to react to them strangely. Furthermore, we have seen crude oil markets show signs of bottoming, so if we were to break down below the 50-day EMA, I think it all ties together quite nicely for a move down towards the 1.20 level underneath. The 1.20 level underneath is a major support level from longer-term charts, so it would cause quite a bit of headline interest.
On the other hand, if we do break above the 200-day EMA it is likely that the pair will go looking towards the 1.28 handle, where we had spiked previously. Breaking above the 1.28 level then opens up the possibility of a move towards the 1.30 handle. This is a market that I think continues to see a lot of choppy behavior, but if we get some type of clarity when it comes to interest rates or perhaps the crude oil market, this might be the first place to look. As we head towards the weekend, it will be interesting to see where we end up, and I suspect that by early next week we should have quite a bit more clarity. In the short term, I would anticipate that rallies are to be sold into, but eventually we will find an impulsive candlestick that we can follow. With that being the case, build up your position relatively slowly, as it can give you a little bit of leeway when it comes to the bigger move. Eventually though, once we do get a significant amount of momentum, it probably will become a longer-term trade.
