- The US dollar continues to drift lower against the Canadian dollar during Christmas Eve trading in what one would have to assume is very thin trading.
- That being said, this is a market that I think you need to be very cautious with, as it is one that ultimately is going to be very choppy once we settle down.
In the short term, it looks like we are, in fact, trying to get back down to the triple bottom that we had formed at the 1.3550 level during the summer, as traders are now betting that the Federal Reserve is going to start cutting aggressively. This is wrong, but it is what the market thinks because, quite frankly, certain economic indicators that have come out over the last couple of weeks are suggesting that perhaps the Federal Reserve may not have to cut rates so aggressively and in fact, may have to be very cautious and somewhat measured in doing so.
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In other words, this is setting up for a complete reversal given enough time. Oil is getting a little bit of a boost as of late, and that might be part of what is influencing this market as well. This pair has a long history of being range-bound, and it could very well be a market that spends most of next year between 1.35 and 1.40, but we will just have to wait and see.
We are getting fairly close to an area that should be somewhat supported due to the market memory of this pair. As time goes on, we start to pay close attention to the inverse correlation in this pair due to the United States economy being a main driver of the Canadian economy. As long as the US economy is doing fairly well, it does help Canada, so a lot of times you will see this pair drop when things are good in America, ironically. The interest rate differential is almost nonexistent and probably will be sometime next year, and I think that is part of what we are trying to price in. Whether or not the Canadian dollar can really start overcoming the US dollar, that is a completely different question.
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