The US dollar has initially tried to rally against the Canadian dollar on Monday, but then fell towards the 200 day EMA. The USD/CAD pair has a major uptrend line just underneath that could continue to offer a certain amount of support, as it has over the last several months. It is because of this that I am paying close attention to this pair, due to the fact that the market has been in such a well-defined range for a while that we could get a nice trade set up rather quickly.
Furthermore, not only do we have the uptrend line, but we also have the potential “golden cross” forming as the 50 day EMA turns to the upside and is getting ready to cross above the 200 day EMA. The markets have a significant support barrier not only in the uptrend line but his own that extends down to the 1.25 handle. As long as we stay above all of that, it still is technically short-term bullish. However, if we were to break down below that level it is likely that this pair will go looking towards 1.20 handle again. It is worth noting that the 1.20 handle is a major support level on longer-term monthly timeframe charts.
Alternately, if we can take out the 1.27 level to the upside, it is likely that we go looking towards the 1.29 handle again, possibly even the 1.30 handle after that. Breaking that general vicinity opens up a longer-term “buy-and-hold” type of scenario, which of course would work against the idea of oil rising, but at the same time interest rates in America are going higher, so it does make the US dollar much more attractive than lower yielding currencies. At this point, it is essentially a fight between bond yields and the energy market. In other words, we are going to continue to see a lot of very noisy trading as you can make an argument for both of these currencies rising. It is like anything else, we need a couple of strengthening assets, they tend to be very choppy against each other. Pay close attention to the 1.25 handle, because breaking down below the bottom of it would be the easiest trade to take. However, the easiest trade is not always there so keep your eyes open.
