The US dollar initially pulled back towards the 50-day EMA to turn around and show signs of life again. The US dollar is now approaching the 200-day EMA against the Canadian dollar, which is interesting considering just how bullish the crude oil markets have been. Because of this, it is very likely that we will continue to see this market try to break out, especially as we have the “tweezer top” from the previous couple of sessions. If we can break above that level, then it is likely that we will go looking towards the 1.28 handle, possibly even the 1.29 level.
When you look at this chart, it does not take much imagination to note that there was a significant uptrend and channel, and now that we have broken above the top of the channel and then pulled back to retest it as support, it looks as if we are ready to go higher and continue the move to the upside. The US dollar is currently trying to strengthen quite significantly against multiple currencies, and the Canadian dollar is yet another one. Even though oil has been somewhat bullish, the reality is that the Canadian dollar has decoupled from the oil market, at least temporarily.
Yields in Canada are rising, but not as quickly as yields in the United States are. This suggests that the US dollar should continue to rally against the Canadian dollar, and it is likely that we would continue to see the greenback flex its muscles. The question now is whether or not we will continue to go higher. I think that the 200-day EMA will continue to cause a bit of trouble, but if the US dollar strengthens against most other currencies, I do not see how this one is going to be that much different. If we do break down below the 50-day EMA, then it is likely we will go looking towards the bottom of the channel. The channel has been relatively reliable, so obviously if we were to break down below the bottom of it, that would be an extraordinarily negative turn of events, opening up a move down to the 1.23 handle. I think the only thing you can count on here is a lot of choppy behavior, but that is typical for this pair as the two economies are each other’s number-one trading partner.
