The US dollar drifted a little bit lower against the Canadian dollar on Monday as we continue to see the crude oil markets trying to break out to fresh, new highs again. The US dollar has been soft for a while, and it does make sense that we would see a continuation of the overall downtrend. If we break down below the 1.23 handle, then it is likely that we will see a bigger move to the 1.20 handle underneath.
To the upside, the 1.25 level would be a large, round, psychologically significant figure that a lot of people would be paying attention to, so I think it offers a huge barrier. Beyond that, we also have the 50-day EMA hanging around that general vicinity, so I think that also offers a significant amount of resistance. This is a market that I have no interest in trying to go long in, due to the fact that crude oil is so bullish and there are plenty of reasons to think that the Canadian dollar will strengthen outside of that, not the least of which would be the fact that the Bank of Canada is going to be tapering much sooner than originally thought.
When you look at this chart, we are in a major bearish flag, and it suggests that we have a move towards the 1.20 handle after that. The 1.20 level is a major support level on longer-term charts, so breaking below that would be a huge signal that we are about to see massive US dollar weakness, and perhaps even a huge move in the oil market at the same time. Keep in mind that this pair does tend to be very choppy overall, so you need to be somewhat patient with the market, meaning that it does not necessarily take off easily, but eventually it will make a bigger move. We have seen a lot of negativity as of late, but the last couple of weeks have been sideways. The market continues to see a lot of negativity from a longer-term standpoint, and even though it was not that long ago, we look like we are trying to recover, we clearly have changed back to a bearish tone.
