The US dollar tried to breakout against the Canadian dollar but failed as the resistance has held so far.
USD/CAD
The US dollar has fallen a bit against the Canadian dollar during the trading session on Wednesday as we have tested significant resistance. It’s worth noting that we formed a shooting star during the previous session on Tuesday right at the 50-day EMA, so it does suggest that perhaps we are seeing a bit of exhaustion.
This does make a certain amount of sense because quite frankly the market has been consolidating for a while. But we are in the midst of forming a massive W pattern and if we can turn around from here, I think that would be a very strong sign that the US dollar is going to go higher.
Let's be honest here, we have a scenario where traders are paying attention to the Federal Reserve and whether or not they are going to cut. We are starting to see some increased bets on going down to 2% by 2027. We'll see. I'm not entirely convinced about that, but as time goes on it will become clearer through economic announcements.
Canada on the other hand is basically sitting where they're at, so the interest rate differential isn't that massive and really at this point I think you have to look at this through the prism of risk on or risk off. Furthermore, the economic numbers in the United States, if they continue to be a little better than people anticipated, that could put upward pressure on the dollar.
Oil Rallies and Production Levels
This is an interesting pair for me because oil has rallied, nobody seems to care, and that does make sense. The old adage of the Canadian dollar following oil does make a certain amount of sense but not against the dollar. The United States produces 13.5 million barrels a day and is slated to produce more.
That being said, I think this pullback offers a buy on the dip opportunity or if you're nimble enough I suppose you could short this market by playing the range. But once we get above 1.3750, this pair more likely than not goes looking to the 1.39 level.