The US dollar spiked on Friday as the interest rates in America shot through the roof. That being said, the market is likely to continue to see a lot of noisy behavior, and I do think that it is probably only a matter of time before we have to decide whether or not the US dollar continues to appreciate, despite the fact that we have seen the oil markets take off. This is very interesting to see just how much the market has ignored oil, and it is likely that we will continue to see a lot of bullish pressure. If we were to break out above the 1.128 level, that could be a huge deal.
On the other hand, if we see the US dollar lose a little bit of strength in general, then it is possible that we could see this market pull back towards the 50 day EMA. I think at the very least you can probably count on a lot of choppy noise, and you need to be cautious about the position size if you put out there, unless we get some type of significant move outside of this little range. If we do break out above the 1.28 handle, then it is likely that we could go looking towards 1.29 level rather quickly. The 1.30 level above is going to be difficult to break above, but if we do then it is likely this will kick off a larger move to the upside. This would show extreme Canadian weakness and fear out there as the US dollar is considered to be a safety asset.
If we break to the downside and clear the 200 day EMA, it is possible that it could be due to the market finally drawing the correlation between Canada and oil, so that could open up a move down to the 1.25 handle. Either way, this market will continue to be choppy in general, because that is what it typically does: chop around. Both of these economies are tied together quite tightly, so it makes sense that we would see more noise ahead. Keep your position size reasonable, but pay close attention to that 1.28 handle and whether or not we can break above there.
