- The US dollar has fallen during the trading session on Monday to break back below the 50 day EMA against the Canadian dollar.
- All things being equal, it is worth noticing that the 1.36 level underneath is major support, and previously it has been major resistance.
- So, I think a certain amount of market memory continues to come into the picture at this point.
I like the idea of buying a short-term pullback in order to take advantage of cheap US dollars, especially against the Canadian dollar, because as somebody who goes to Canada quite a bit, I can tell you that the Canadian economy, although not falling apart, is definitely struggling, and they are highly sensitive up there to what's going on here in America.
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It all comes together….
So, I think it all ties together quite nicely. The Bank of Canada is nowhere near tightening monetary policy and while the Federal Reserve is unlikely to do that, the reality is the Federal Reserve may hang on to higher rates longer than people think. From a technical analysis perspective, the 1.36 level is backed up by the 38.2% Fibonacci retracement level and perhaps even the 200-day EMA underneath there. With this, it looks like we're forming…I wouldn't call it a bullish flag, but it's something along that kind of attitude in general. A pullback at this point and a bounce is exactly what you want to see, perhaps for a move to the 1.37 level, maybe even 1.38.
Remember, the USD/CAD pair does tend to be very choppy because the two economies are so highly intertwined, and there's really no way around that. With this, I like the idea of buying this dip, but keep in mind Monday of course was Memorial Day in the United States so liquidity would have been almost non-existent. However, the longer-term trend is most certainly to pay close attention to the 1.36 level for directionality over the next several weeks, if not months.
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