I still favor a move to the upside more than anything else and I would look at any pullback as a buying opportunity.
The US dollar gapped higher against the Canadian dollar on Monday as we continue to see a lot of strength in the greenback. As we continue to worry about global growth, it does make a certain amount of sense that money is running to the United States for protection. Furthermore, we also need to keep in the back of our mind that there are concerns about whether or not there is going to be enough growth to suggest that we will have a massive amount of demand for crude oil.
Furthermore, we need to look at the interest rate differential between the United States and Canada, which of course favors the United States. However, recently we have seen some inflationary numbers coming out of Canada, so that will more likely than not keep this market somewhat in check. We look at the longer-term chart, we have been bouncing around a major consolidation area with the 1.29 level above being a major resistance barrier. Underneath, the 1.25 level will be significant support, so it all comes together for a nice 400-point range.
As long as we continue to see so much in the way of noisy behavior, it is difficult to imagine that we are going to get overly bullish on anything that is not the greenback right now because it represents safety. However, if we were to break above the 1.29 level, it could open up the possibility of a bigger move, with an eye on the 1.30 level as a major barrier. If we were to break above there, then it becomes more or less a “buy-and-hold” type of situation. I do not necessarily think that is going to happen easily, but that is something that we need to keep in the back of our minds.
It should be noted that there is a gap underneath, and that quite often will cause a significant amount of support and it is possible that we could continue to see a lot of interest due to that. However, if we were to break down below the 50-day EMA, then the market is likely to go back down to the 1.25 handle. That being said, I still favor a move to the upside more than anything else and I would look at any pullback as a buying opportunity.