The US dollar drifted a bit from the highs over the last couple of days to show strength in the Canadian dollar in the short term. That being said, you could make an argument for a little bit of a complex head and shoulders pattern, but right now I think we are a long way from being able to act upon any thoughts of that. The market has a multitude of support levels underneath that could come into the picture, so I do think that it is difficult to start shorting here, even though the candlestick telling you that we are going lower.
The first thing that I noticed underneath is that the 50-day EMA is just about ready to cross above the 200-day EMA and what is known as a “golden cross.” That is a longer-term signal that a lot of people will pay attention to, and it will attract a lot of headlines. Furthermore, we are sitting right at the 1.26 level, an area that has offered both support and resistance multiple times in the past. After that, we also have an uptrend line underneath that is slicing through that general vicinity as well, so I do think that we are likely to continue to see buyers on dips.
If we were to turn around and break above the 1.30 handle, then it becomes a longer-term “buy-and-hold scenario.” If we do pull back from here, I am looking for signs of support against the aforementioned 1.26 level, which is value extending all the way down to the 1.25 handle from what I can see. In other words, I think there is a big “zone of support” just waiting to show its importance. That being said, keep in mind that the pair is highly choppy due to the fact that the two economies are basically intertwined at this point. With that in mind, the market will continue to be very noisy, but I do think that we have buyers just waiting to get involved and push it to the upside. If we break down below the 1.25 handle, then I might be a seller of this pair, perhaps aiming for the 1.2250 handle, but that does not seem as likely at this point in time.
