The US dollar initially fell on Friday, but after crude oil markets turned around, we ended up forming an exactly inverse candlestick of what we had seen in the WTI grade market. The hammer that closed out the week suggests that we are putting significant pressure on the resistance just above, which makes quite a bit of sense considering that we had recently touched the bottom of a major consolidation range.
Pay attention to the interest rate differential between the United States and Canada, because I think that is probably what is driving this market more than anything else. If we break above the top of the candlestick, then I believe we are going to try to make a run towards the 1.30 handle, just as breaking down below the bottom of the candlestick technically makes this a “hanging man”, which is a negative technical candlestick pattern. Pay attention to the crude oil market as well, because if that continues to struggle it is very likely that the Canadian dollar will as well, sending this pair higher.
The US dollar has been strong against most currencies anyway, so this should not be a huge surprise. Canada is not only an oil-producing country, but it is also thought of as a resource-rich economy, meaning that the overall commodities will continue to cause issues. Ironically, lumber prices are not helping Canada, despite the fact that it is a huge business. At this point, I think that could actually be working against them, because most of the rise has been after the Americans slapped further tariffs on Canadian lumber.
The 50-day EMA is starting to rally a bit, and it looks like it is ready to take out the 200-day EMA to the upside. Crossing there would kick off the “golden cross” that a lot of people look to for longer-term trade signal. It is more of an investment thesis, but we are at an extremely low level so this should not be a huge surprise. The Canadian dollar will continue to follow oil to a point, but there are also interest rate differential problems and Canadian internal lockdowns to consider as well. The US economy continues to be the leader around the world.
