The US dollar turned completely around on Friday to wipe out the losses from Thursday, and even the body of the shooting star from Wednesday. This is an impressive move, and with oil seemingly stuck in a short-term range, the crude oil market may not bail out the Canadian dollar. That being said, we are most certainly approaching a significant resistance barrier that will have to be taken out in order to continue being a buyer.
To the upside, the most obvious level is the 1.30 handle. This is obviously a large, round, psychologically significant figure, and would generate a lot of headlines if we crossed above there again. That being said, it is worth noting that we pulled back from just underneath there, so whether or not we can build up that type of momentum anytime soon is a completely open-ended question at this point. If we get a daily close above there, then yes, I would be a buyer of this pair in a big way. On the other hand, if we continue to fail just below there, then it could eventually lead to significant selling.
To the downside, we had a turnaround at the 1.2770 level, and that now offers a little bit of a short-term “floor” in the market. If we were to break down below that level then the 1.27 level would be targeted next, perhaps followed by the 1.26 handle. It is worth noting that the 200-day EMA is sitting at the 1.26 handle, so I do think a lot of attention would be paid to that region.
You could, I suppose, make an argument for an inverted head and shoulders presently, but I think a lot of this more or less comes down to the US dollar on the whole. It has been strengthening against multiple currencies, so there is going to be a bit of a “knock on effect” when it comes to the Canadian dollar. Nonetheless, I think that we will be choppy and noisy over the next two weeks like with any other market, so you do need to be cautious with your position size. The fact that we closed at the very top of the range for the session is a very good sign though, and it does suggest that we may make an attempt today to continue going higher.
