- The USD/CAD currency pair initially pulled back a bit during the trading session on Tuesday but turned around to show signs of resiliency yet again.
- We continue to threaten the area just above the 50-Day EMA, and by extension the 1.35 level.
- This is an area that’s been significant resistance as of late, so if we can clear the area clearly, it’s possible that this market could open up a move to the 1.37 area, which is where we have seen a lot of resistance back in December.
USD/CAD Breakout and Breakdown Scenarios
On the other hand, if we were to turn around and break down below the candlestick for the trading session on Tuesday, it kicks off a “hanging man”, which of course is a very negative turn of events. In that scenario, it’s likely that we would see the US dollar dropped down to the 200-Day EMA underneath, which I have circled on the chart. It is at roughly 1.3250, an area that has been important more than once. Because of this, I think you have to look at this through the prism of whether or not we can break out above the resistance just above current trading, or do we need to pull back in order to build up enough momentum.
However, if we were to break down below the 200-Day EMA, that is possible that the dollar could drop down to C$1.30 underneath, where we had seen some action previously and of course it’s also a large, round, psychologically significant figure. Nonetheless, you can make an argument that we have recently formed a massive “double bottom” in this market, and that we are ready to go higher. Furthermore, you have to keep in mind that the Canadian dollar is highly levered to the oil markets, which of course are suffering at the hands of a potential global slowdown. If crude oil really starts online, then out will almost certainly send this market higher. Nonetheless, the Canadian central bank is essentially done raising rates from what I can tell, while the Federal Reserve still has further to go, thereby making the US dollar a bit more attractive anyway. I think at this point, you have to follow momentum, so the question is whether or not we are going to have enough momentum to finally break out?
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