The US dollar initially strengthened against the Canadian dollar during trading on Friday to continue the bullish pressure on Thursday. There had been a lot of concerns that the hot job market might force the Federal Reserve to start tapering, as the jobs report came in at 559,000 for the previous month, as opposed to the “whisper numbers” at the 1 million level.
Furthermore, the oil market rallied, which helps the Canadian dollar as well, as the Loonie tends to be thought of as a proxy for the crude oil market. Beyond that, as you can see, we are in a downtrend, so that is something that we have to pay close attention to.
Underneath, the 1.20 level will be a major level to deal with, and if we can break down below there, it is likely that we could see a very significant move lower based upon the monthly charts. If we do break through all of that, it is very likely that the Canadian dollar will strengthen by about another 1000 pips, sending this pair down to the 1.10 handle.
To the upside, the 1.22 level continues to offer resistance, and most certainly the 50-day EMA will, as it has been relatively reliable. For what it is worth, the 50-day EMA is sitting at the 1.2260 level, an area that in and of itself does not mean much, but it is worth noting that the 50-day EMA is sloping lower and certainly shows no real signs of slowing down. Because of this, I think we will continue to see short-term rallies get sold into, as there simply is not enough momentum to pick this market up from a significant standpoint. With that in mind, I like the idea of fading rallies and jumping on this trade aggressively if we can close below the 1.20 handle on a daily close. Because of this, think it is only a matter of time before that happens, and we could continue to go much lower. In fact, this could be the next “big trade” waiting to happen, but in the meantime, we are simply treading water at a major support level, and as a result, it is a little bit difficult, but I do not see this market reversing due to this short-term basing pattern.
