The US dollar rallied a bit against the Canadian dollar on Wednesday as traders are buying back their short positions, despite oil strength.
USD/CAD
The US dollar rallied a bit against the Canadian dollar early on Wednesday as we continue to see upward pressure in a market that may have just formed a very important double bottom. The double bottom, if it is in fact going to be a turnaround sign, is sitting right at the 1.35 level. The 1.35 level of course is a large round psychologically significant figure and an area that has been important multiple times in the past.
As long as we can stay above the 1.35 level, I think that this pair is still in the midst of trying to form some type of larger range, and that range could be defined by the 1.35 level on the bottom and the 1.3850 level on top. The 1.3850 level is also backed up by the 200-day EMA, so keep that in mind as well. Ultimately, I don't necessarily think that this is going to be an easy trade to take in either direction, but as things stand right now, I do prefer trading with the interest rate differential, in other words, buying the US dollar.
FX Positioning and Market Trends
It's probably worth noting that FX positioning is bearish on the US dollar at its highest level in 14 years. So, either the US dollar is going to completely implode, or we are about to see recovery. I suspect it's the latter of the two options as is typically the case. You start to hear a lot of the narratives get a little off the rails and right around that time, I almost always buy the US dollar, and I'd say about 90% of the time that's the move.
The 50-day EMA currently sits at 1.3734 and is dropping, so that could cause a little bit of noise and it's probably worth noting that we had seen a little bit of resistance there previously. But if we break above there, we just finished a major W pattern, which of course is a reversal signal.
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