The US dollar broke higher to test the 1.3050 level on Monday but then turned around to show signs of exhaustion. However, when you look at the last couple of dips, we have found buyers at lower levels. The 1.31 level above is major resistance, so you can also talk about a potential uptrend channel that we are hanging around, and it’s likely that we will see short-term pullbacks continue to get bought into.
The 1.2950 level offered temporary support, but then the 1.2850 level underneath offers even more support. The 50-day EMA sits in that same area, and it makes quite a bit of sense that there should be buyers there as well. It’s also an area where we have balance from and seen an impulsive candlestick form, so I believe this market will eventually try to find enough momentum to go higher.
What I find interesting is that the candlestick looks more like a shooting star than anything else. Ultimately, the market is likely to continue to see the area just above as causing problems, and I think we will have quite a bit of volatility ahead of us. However, you should also pay close attention to the crude oil market, as a Canadian dollar is highly sensitive to the moves in that market.
The pair breaking down below the 1.28 level could turn things around, and we could jump down to the 200-day EMA, which sits just below the 1.2750 level. Ultimately, this is a market that could drop down to the 1.25 level underneath, which is an area where we’ve seen buyers previously. However, it’s worth noting that this market will continue to be very noisy regardless, so with this being the case I think you should be cautious about your position size. This makes sense as this pair is highly choppy to begin with, as they are each other’s biggest trading partners, so a lot of noise gets introduced into the market. Nonetheless, the one thing that I have noticed that has been somewhat steadfast in the market has been that there are people willing to bid prices higher over the longer term, albeit in a very gradual way. Ultimately, I think buyers will eventually try to take over.
