The US dollar rallied just a bit on Wednesday to show signs of life as the 1.28 level has offered support. The market bouncing from there does suggest that perhaps we are ready to go higher, but you should also keep an eye on the oil market as it obviously has quite a bit of influence on the Canadian dollar itself. Nonetheless, there is another aspect that you need to think of: risk appetite.
The candlestick for the trading session on Wednesday essentially wiped out the Tuesday candlestick, so now the question is whether or not the US dollar can build up enough momentum to turn things around and go looking to break above the 1.29 handle. Breaking above that level then opens up the possibility of another attempt at the 1.30 handle, and it should be noted that risk appetite is miserable, so it is difficult to imagine that the US dollar is going to sell off for any significant amount of time. After all, we had moved to the upside rather quickly, so a pullback made a certain amount of sense.
Even though the oil markets have been bullish for a while, it is probably worth noting that there are lot of concerns when it comes to growth around the world, and that does have an effect on commodity currencies such as the Canadian dollar. It is not necessarily that oil is going to collapse, just that there may be a lack of demand for riskier assets. A lot of inflation has been found out there and is starting to affect consumer attitudes in the United States, which has a direct effect on Canada over the longer term. Because of this, a bounce from here does make sense but I also have to keep in mind that if we were to break down below the 50-day EMA, then it is likely that we will go lower from there. In that scenario, we probably have to look towards the 200-day EMA, which is essentially where the gap occurred several weeks ago. While that is possible, it seems unlikely in the short run. The interest rate differential continues to favor the United States, that has helped the greenback as well.
