The US dollar fell a bit on Friday only to turn around and show signs of life. As Jerome Powell reiterated the need to taper and got a little bit of money flowing into the US dollar overall, it showed itself not only here, but in other currency pairs as well. The market looks as if it is trying to form a little bit of a base in the short term, but I think ultimately the market will only find sellers above. After all, the Canadian dollar is highly levered to the crude oil market, and the crude oil market is very bullish right now.
That being said, the market can go straight up or down forever, so it makes sense that you can take advantage of this little bit of a bounce, and then perhaps get a better price on the Canadian dollar by selling at a higher level. The 1.25 level I believe ends up being a massive resistance barrier, especially as the 50-day EMA is starting to reach towards it.
To the downside, if we were to break down below the lows of the week, then it is likely that the US dollar will fall towards the 1.20 handle. At this point, a move down there will probably take a while to make its target, but it certainly seems to be where we are heading currently. The market will continue to hear a lot of noise in general, and will continue to pay close attention to the crude oil market. The US dollar itself has been getting beaten up for a while, so it probably is due to see a little bit of a recovery. You are starting to see that in multiple currency pairs right now, not just this one, so I think it is probably more about the US dollar than the Canadian dollar at this point.
Expect a lot of choppy behavior, but at the end of the day I think that any rally will simply be a nice opportunity to get short yet again, as the trend is so firmly ensconced in this market. The crude oil markets are overextended as well, so I think this all lines up quite nicely.