The US dollar initially pulled back just a bit on Friday only to turn around and show signs of strength yet again. At this point, we are hanging about the 1.28 level, an area that is significant resistance from the previous action that we have seen. At this point, the market has turned around quite drastically to form a major “V pattern”, which is a very bullish sign.
Keep in mind that the crude oil markets continue to be strong overall, but they have been a little bit soft over the last couple of days. A pullback is coming, and that might also help the US dollar against Canadian dollar. Quite frankly, the Canadian dollar is also getting a little bit of pushback due to the fact that the Bank of Canada is nowhere near as hawkish as the Federal Reserve, which is a major factor in this market as well. Upon, I see the 1.30 level as a significant barrier to overcome, and I do not know that we can do it easily.
In general, this is a market that I think will continue to be very range-bound, but that is typical for this pair as the two economies are so highly intertwined, despite the fact that there are a lot of concerns at the border with truckers and the shutting down of a lot of commerce. If that does in fact end up being a big deal, this will certainly punish Canada more than it will the United States. If that is the case, and we break above the 1.128 level, we make a move towards 1.30 level. If we break above there, the trend changes.
To the downside, I believe that the 1.2550 level could be a support level. The area was the previous top of a consolidation area previously, which offers a lot of support due to the order flow. If we were to break down below that, obviously the Canadian dollar would take off in strength, but I just do not see how that will happen in this major “risk off environment” anyway. Expect a lot of choppiness as per usual, but in the short term I believe that the 50 day EMA will be a bit of a support level as well.
