The US dollar initially rose ever so slightly against the Canadian dollar before falling towards the 1.2520 level. The area features the 50-day EMA offering support, and I think it is probably worth noting that we need to see that indicator broken through in order to see further momentum. We have bounced ever so slightly from the 1.25 handle, so that is probably something worth paying attention to as well. Obviously, the Canadian dollar has a high correlation to the crude oil market, which is a bit surprising considering that oil has been pulling back while the Canadian dollar has been strengthening over the last couple of days. Nonetheless, sometimes we get a bit of a divergence going on.
When I look at this chart, it is very easy to see that there was a previous uptrend and channel that had been broken, and now we are testing the top of it. It is because of this that I think the next couple of days should be rather interesting. It is also worth noting that we have pierced the 200-day EMA on Friday, only to give back those gains. The question now is whether or not the top of the previous uptrend and channel will now offer support. As things stand right now, it does look like it is at least causing a bit of noise, which in and of itself is a relatively good look.
If we were to break down below the 50-day EMA, which is currently at the 1.2480 handle, then I think we will probably drop towards 1.2425 level. That could very well be a situation where the market catches up over the next couple of days. It will be interesting to see how this plays out, but keep in mind that this is a market that does tend to move not only upon oil, but the strength or weakness of the US dollar itself. These two economies are extraordinarily intertwined, so that also has to be kept in the back of your mind when it comes to how this plays out. I think that it is more than likely only a matter of time before we see an attempt by the US dollar to pick up strength, especially as we had seen so much strength in the greenback during the session against other currencies.
