It still looks as if the US is still going to be favored as things stand right now.
The US dollar initially fell a bit during the trading session on Thursday but turned around to show signs of life. The 1.25 level has been significantly supported over the last several months, so it is not a huge surprise to see a little bit of a bounce from here. Furthermore, most of the Canadian dollar strength that we had seen leading up to this trade was based upon a bit of a surprise coming out of inflationary numbers in Canada.
That being said, we already know that the Federal Reserve is going to be aggressive about hiking interest rates, and even if the Bank of Canada were to start to tighten, they are still behind the US. This is expressed in interest rates, which of course have a major influence on the Forex markets.
The candlestick did not wipe out all of the losses from the previous session, but considering that it was done organically, and not necessarily based upon any type of announcement, it does suggest that there is real demand underneath. As long as we can stay above the 1.25 handle, there is a really good chance that we stay within this range going forward. The top of the range is closer to the 1.29 level, so we have quite the distance between here and there to cover if we do start to rally. This would also jive fairly well with a “risk-off” type of environment, as it would favor the US dollar regardless.
Crude oil markets of course have their influence on the Canadian dollar, but it seems as if they are at least trying to stabilize, and therefore it might give the Bank of Canada a bit more clarity going forward. Having said that, it still looks as if the US is still going to be favored as things stand right now. If we can take out the top of the Wednesday candlestick, that would then have the market threatening the 200 Day EMA. By breaking above there, the pair is likely to continue going higher, perhaps reaching to the 1.28 level above. It is difficult to imagine this market breaking above that level, but if it does then it is obvious that it would lead to a much bigger move. I do not necessarily see that right now, but I certainly see an attempt to get back to the 200 Day EMA in the short term.