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USD/CAD Forecast: USD Bounces From Support Against Loonie

A lot of traders will struggle with this trade because they are so used to trading solely based on crude oil.

The US dollar has initially pulled back against the Canadian dollar but then turned around to show signs of life again. The market has been in a consolidation area for a while, and therefore it is not a huge surprise to see that buyers had come back into the middle of the region. After all, the 1.25 level has been very important for a while, and therefore one could have expected a bit of buying pressure.

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The 50 Day EMA and the 200 Day EMA are both sitting just above recent trading action and are both flat. This suggests that the market is still going to remain range-bound, which makes quite a bit of sense considering that the Bank of Canada has just done a 50 basis point interest rate hike, and the Federal Reserve is expected to do the same shortly. In other words, we are essentially in some type of balance.

When you look at the chart, you can see that clearly the 1.25 level has been supported, while the 1.29 level has been resistant. In general, I think we will stay in this range, but it is worth noting that there is a major hammer that formed when we pierced the 1.25 handle. If we can break it down below that level, which is essentially the 1.24 level, then it is likely that the market will start to fall apart at that point. In that scenario, it would probably have something to do with a major spike in the crude oil market, but it is difficult to imagine a situation where we get that big of a move.

For what it is worth, the US dollar was rising while the oil markets did the same during the day, so the correlation does not have to all the time, and in the situation that we are currently in, being stagflation globally, it is very likely that this should continue to be a loose connection at best. Because of this, I think a lot of traders will struggle with this trade because they are so used to trading solely based on crude oil. The size of the candlestick during the trading session on Thursday was rather impressive, so it will be interesting to see if we can break above the 1.27 level, which would more likely than not open up the possibility of a move to the 1.29 level.

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