The US dollar fell initially during the trading day on Wednesday to break down to fresh, new lows, but then turned around to show signs of life again. At this point, the market looks as if it is trying to make a longer-term decision, but it should not be a huge surprise that we are struggling due to the fact that the jobs number comes out on Friday, and we have a couple of inventory figures coming out for crude oil over the next 48 hours.
Looking at the candlestick for the day, it suggests that we are going to form a hammer, which is bullish. We were preceeded by the inverted hammer from the day before, so this tells me there is a lot of momentum in both directions pushing against each other. Or maybe, just maybe, there is no momentum at all? (At this point, it does not really matter. The only thing that matters is that there seems to be equal pressure in both directions.)
In a situation like this, we typically will go sideways until we get a catalyst to move the markets. I think that catalyst probably will come on Friday, not necessarily the inventory figure, unless it is completely over the top. With this in mind, I believe that the market will probably continue to see a lot of back and forth short-term trading, but as far as a bigger trade is concerned, I suppose the ideal situation would be for the market to go looking towards the 1.24 handle before showing signs of exhaustion that you can sell into. On the other hand, if we were to break down below the candlestick for the trading session on Wednesday, then it opens up a move down to the 1.22 handle next.
We are most certainly in a downtrend, so I do not have any interest in buying, at least not anytime soon. The Bank of Canada has suggested it was going to taper from bond purchases relatively soon, making it the first of the G-10 economies to do so, which has ramifications when it comes to the Canadian dollar as it has seen strength against most of its counterparts. The US dollar will be no different, especially as the Federal Reserve has shown no willingness whatsoever to tighten.
