The US dollar drifted a little bit lower against the Canadian dollar on Tuesday to reach down towards the previous uptrend line, sitting just above the psychologically and structurally important 1.25 handle. By pulling back the way we have, the market looks as if it is going to evaluate this major support level underneath, but the market has quite a bit to deal with right now, especially as the CPI numbers are coming into the picture on Wednesday.
The 50-day EMA underneath is massive support as well, so even if we do crack below the uptrend line, it is not really until we break down below the 50-day EMA that I would be short of this market. On the other hand, the 200-day EMA sits just above at the 1.26 level, an area that has been important a couple of times now. If we can break above the 1.26 level, then the market is likely to go higher, reaching towards the most recent high at the 1.28 handle. I truly believe this comes down to what the inflation expectations are in America, which will have a lot to do with the Wednesday announcement.
Currently, the market is squeezing between the 50-day EMA and the 200-day EMA, so it is likely that we will see some type of impulsive move one way or the other. The US dollar will be worth paying attention to on a holistic spectrum, meaning that we will have to watch it against multiple currencies, not just this one. With the inflation situation in the United States, the greenback will move in a similar direction against not only the Canadian dollar, but all of the other major currencies. Furthermore, you also have to watch the crude oil market, because it obviously has a major influence on the CAD.
