The US dollar broke higher on Tuesday to test the top of a major channel. At this point, crude oil markets are also starting to fall apart, so that does have a massive effect on the CAD. With this, and the fact that the US dollar is relatively strong anyway, the move does make quite a bit of sense. Ultimately, I think this is a market that will continue to see a lot of noisy behavior, but whether or not it respects the channel is a completely different question.
Looking at this chart, it is probably worth noting that the most recent low tested the 50-Day EMA, but then the market turned around to show signs of life again. The huge candlestick for the trading session on Tuesday suggests that there is significant buying pressure, and I like the idea of a potential breakout above the 1.31 handle. If we do break above there, then the market is likely to go much higher. This is a market that has a well-defined channel that we need to pay close attention to. The overall attitude of the market is bullish, so you need to understand that you should be favoring the upside anyway, although the Canadian dollar has been a fighter.
If we were to turn around and break down below the 50-day EMA, it’s possible that the Loonie could look to the 200-day EMA near the one .27 level, and then possibly down to the 1.26 level after that. That is essentially the bottom of the channel, so if we were to break below there, then it’s likely that we fall apart completely.
This is a market that I think is starting to price in the idea of oil struggling, especially as there has been a major concern out there when it comes to the idea of global demand, something that should not be very positive for this market as it looks like people are struggling. That should continue to weigh upon oil, so we will have to wait and see either way. The US dollar has been strong for some time, and it should continue to be so. However, if there’s one currency that can give it a huge fight it will be the Canadian dollar due to the fact that there is so much cross-border transacting between the two.
