The US dollar went back and forth on Monday against the Canadian dollar, as we are sitting just below the 50-day EMA. The 50-day EMA is a technical indicator that a lot of people pay close attention to, so it is worth noting that it sits just below the 1.25 handle. This is an area that should attract a lot of attention, if for no other reason than the fact that it is a large, round, psychologically significant figure. The area that also has a little bit more credence to it due to the fact that we had previously seen both support and resistance happen in the past, so it does make sense that we would see “market memory” come into the picture.
Looking at this chart, you can make an argument for a bullish flag, so that is something that you need to pay attention to as well. If and when we finally break down, the “measured move” of the bullish flag suggests that we could go looking towards the 1.20 handle. The 1.20 handle is an area that has been support previously, and an area that matters on monthly charts. In other words, it makes sense that we would see that as a natural target for testing. It is also where we had bounced from previously, so it makes sense that we will try to get back down there.
The oil market has a major influence on the Canadian dollar, and the fact that the WTI Crude Oil market pulled back a bit after initially gaining during the day cannot be overlooked as well. That being said, the WTI market is forming a bullish flag, so if that kicks off, that should be enough to send this pair lower. On the other hand, if we were to turn around and close significantly above the 1.25 handle, it could open up for a bigger move, perhaps reaching towards 1.27 handle. Nonetheless, this is a market that will continue to be very noisy, which is typical for this pair as these two economies are so highly intertwined. It is in a downtrend, so I do favor shorting, but I would like to see oil participate in this move as well.
