The US dollar has fallen again during the trading session on Thursday as the Canadian dollar continues to get a bit of a boost. This is particularly interesting due to the fact that oil markets are also threatening to break out. If that is going to be the case, then it should be good for the Canadian dollar overall. It had been sold off quite aggressively against the greenback, but perhaps after the Federal Reserve meeting on Wednesday, traders have started to price in the idea that the Federal Reserve is going to be extraordinarily cautious when it comes to the idea of the speed of tapering.
By its very definition, this could mean that the Federal Reserve is going to remain as loose as needed, so that of course is something that will have to be paid close attention to. After all, the US dollar strengthening hurts most economies, not just the US. It also has a negative influence on the cost of commodities, so it is interesting to see this dichotomy play out again. Over the longer term, I would anticipate that we will continue to see a lot of back and forth in this pair, which makes a considerable amount of sense considering that the two economies are so highly intertwined. Nonetheless, I do believe that it is probably only a matter of time before we will see support come back into the picture. Yes, we close at the bottom of the candlestick for the session, and that typically does mean you get some follow-through, but I also see some technical areas underneath that could be a little bit stubborn.
The first one of course is the 1.27 level, but beyond that we also have the 1.26 level which has already caused support, and then we have the 50 day EMA sitting just underneath there offering a bit of support as well. With that being the case, I think the market is probably more likely than not to find the downside somewhat limited, although it is worth noting that we have pulled back from the same area that had been so difficult previously. At the end of the day, I think that we have a little bit more in the way of negativity ahead of us, but whether or not we can break down below the 1.25 handle is a completely different question.
