The US dollar got hammered on Monday against the Canadian dollar as the crude oil markets took off. Furthermore, people are starting to question whether or not the Federal Reserve is going to taper, and with the Jackson Hole Symposium this week, there is a huge possibility of statements coming out of that meeting that could move the US dollar.
Keep in mind that there is a massive “three bar reversal” being formed, which typically is a signal to start selling. However, there are a lot of supportive technical bits and pieces underneath, as there is a major uptrend line sitting near the 1.26 level. The 200-day EMA is also sitting in that same area and starting to curl higher. With that being the case, the market is likely to continue to see a lot of buying pressure in that region. This will be especially true if the Federal Reserve does in fact start tapering. That will drive the US dollar much higher and continue to see the attempted change in trend work itself out. Underneath all of this, we have the 1.25 handle that would also offer support, especially as the 50-day EMA is starting to curl above it. Speaking of the 50-day EMA, there is the possibility of the so-called “golden cross” forming, as the 50-day EMA could turn back above the 200-day EMA.
That being said, if we do end up breaking down below the 1.25 handle, then I think this pair will go looking towards the 1.20 level underneath, which is a large, round, psychologically significant figure and an area that has offered support not only recently, but over the longer term if you look at the monthly charts. That was a nasty reversal on Friday, so the fact that we pulled back a bit should not be a huge surprise in the short term, but now over the next couple of days we will have to answer serious questions about this pair, and we are about to get an answer as to which direction we are going for the longer term. In the meantime, you need to be very cautious and patient to wait for some type of clear signal that you can trade upon.
