The US dollar initially tried to rally on Wednesday but turned around to show signs of exhaustion. The 1.29 level has offered quite a bit of selling pressure, and we have closed at the very bottom of the candlestick. Ultimately, it’s worth noting that the bond market is starting to pick up a little bit of a bid in the United States, and that suggests to me that the US dollar could fall further. That being said, the Canadian dollar is influenced by crude oil as well, which is a bit elevated.
Looking at this currency pair, it’s very choppy under the best of circumstances, so I think we will continue to go back and forth. The 50-day EMA will offer dynamic support, and if we break down below there then we have to look at the 1.27 level as well, especially as the 200-day EMA sits there as well. At this juncture, I think there will be plenty of buyers on dips, but if we were to break down below the 200-day EMA, then it’s likely that we would break down and look to reach the 1.25 level after that.
On the other hand, if we turn around and break above the 1.29 level, it’s possible that this pair could go to the 1.30 level. Breaking above the recent high opens up the possibility of a much bigger move, perhaps something along the lines of a “buy-and-hold” scenario. The market will be volatile under the best of circumstances, so keep in mind that the position sizing of each trade should be the most important thing.
In general, this is a market that you can use to trade the oil market by proxy, perhaps in an intraday situation. The market seems to be very noisy at best, so because of this, you need to be cautious and perhaps use some type of range-bound system on short-term charts. I think this is going to continue to be very choppy throughout the summer, as there are a lot of questions about crude oil demand, as well as supply. You should also be cognizant of what’s going on in the 10-year note, and whether or not the interest rates are rising or falling in America. That will be the biggest driver of all.
