The US dollar initially tried to rally on Wednesday, bouncing from the 1.25 level. However, we turned around and fell rather significantly, perhaps helped by a stronger than anticipated drop in US inventories in the crude oil markets. That of course has a significant effect on the Canadian dollar, as it is a proxy for oil overall. Now that we have broken below the 1.25 level, we turned around to test that area again. That’s an area that should be both support and resistance depending on which direction we go, and therefore I think that it should be thought of as “fair value” in the currency pair. Ultimately, I think that range bound trading is probably about as good as this goes, and I would be a bit leery of putting money into a longer-term position. Having said that, I think that the markets will try to make a stand in one direction or the other, and once we finally get the inertia to go in one direction, we should see a significant follow-through.
However, in the meantime I think that the market continues to be difficult, and dangerous to navigate. Markets will probably continue to be noisy, as the crude oil markets are noisy as well. I think that if we can clear the 1.26 level, we will have officially moved beyond the 1.35 region, and that should be bullish enough to send this market to the 1.30 level. Longer-term, I think the US dollar will probably rally from here, I also am cognizant of the fact that a breakdown below the 1.24 level would be very negative for this market, and probably have a looking for the 1.21 level after that. Either way, and the short-term I think it’s can be very difficult beyond the occasional scalp.
Written by FX Empire