The US dollar went back and forth on Wednesday as we are hanging around the 1.2650 handle. This is a market that continues to see a lot of interest in the 50 day EMA sitting just below, and has its typical correlation to the crude oil market that you should be paying attention to. However, that does not necessarily mean that the Canadian dollar absolutely has to have the crude oil market move it, and it does not always have the most positive of correlations. With that being the case, I think the market continues to see a lot of noisy behavior but I think given enough time we will probably have this market looking more likely than not to recover, even if we do not have oil interference.
Looking at this chart, it looks as if we are finally calming down from some of the recent selloffs, so I think what we have here is an opportunity to pick up “cheap US dollars.” Because of this, I think you need to see whether or not we can break above the top of the candlestick for the session on Wednesday, and it is likely we could go looking towards the 1.28 handle. At this juncture, the fact that we stabilized suggests to me that we are building up for a bigger move. The reality is that there is a major interest rate differential play at times between the bond markets, but at this point in time it is obvious that the US dollar is a bit oversold. I think that eventually we could go looking towards the 1.28 handle, assuming that we get the breakout to the upside. On the other hand, if we were to break down below the 200 day EMA, then the market is very likely to go looking towards 1.25 level. The 1.25 level has a certain amount of psychological importance attached to it, so I would anticipate some buyers in that area.
Any breakdown below the 1.25 level could have this market breaking down to the 1.2350 level, and possibly even lower. That would probably accompany a serious spike in oil, or perhaps some type of major selloff in the greenback overall. Nonetheless, I think this is a market that will probably rally.
