The US dollar fell hard on Monday against the Canadian dollar as crude oil continues to attract a lot of attention. When you look at the longer-term chart, you can see that we are clearly in a massive channel, and now it looks as if we are trying to get to the bottom of it. Because of this, I would anticipate further downward pressure, but I would also expect a certain amount of support at the bottom of the channel. That is essentially the 1.2550 level and is rising as time goes along.
There are a couple of things to keep in mind at the moment. We just sliced through the 200-day EMA and look likely to close at the very bottom of the range. Having said that, it was also Memorial Day in the United States, meaning that most US-based traders were not online. I don’t know that it would have changed much, because oil continues to rise, but the drop may not have been as drastic.
If we do rally at this point, the 1.28 level would be a significant short-term resistance barrier to overcome. If we can break that, then it is likely that we go looking to the 1.30 level. Breaking above there then means that we will threaten the top of the channel. While the recent action has been very bearish, if you look back almost a year, we have been gradually rising over time. Because of this, I would anticipate that the channel should hold, and certainly would be interested in buying the US dollar on some type of balance in that general vicinity. However, if we were to turn around and break down below the 1.24 level, it’s likely that the US dollar would be in serious trouble.
In the massive “risk-off environment” that we seem to be in, it’s difficult to imagine that the US dollar will melt down against the Canadian dollar. That doesn’t mean that the Canadian dollar cannot rally, especially with oil spiking the way it has. This might be one of those situations where the Canadian dollar does much better against the greenback than many other currencies, but that doesn’t necessarily mean that it needs to run it over either. Expect choppiness as per usual in this pair, but as long as we stay in the channel it’s easier to buy this market than to sell it.
