The US dollar rallied against the Canadian dollar after initially dropping during the day on Monday. We have broken decidedly above the 1.26 level, and that being the case it’s likely that the market is ready to continue going higher, as the Bank of Canada has recently stated that interest rate hikes should not be thought of as “automatic.” The Federal Reserve on the other hand is very hawkish, and it’s likely that the US dollar will reflect those interest rate hikes that are coming. This is a bit of a “perfect storm”, and if the oil markets roll over that could put serious pressure to the upside. I believe that the volatility will continue, but the massive breakout that we sell during the Friday session certainly looks as if it is the real thing.
I believe that the 1.25 level is now the “floor” in the market, and that we will probably go looking towards the 1.28 level, and then eventually the 1.30 level after that. The market should continue to be volatile as per usual, as the 2 economies are so intertwined. However, I believe that the recent selloff in the US dollar is completely overdone, and that should continue the upward pressure as the previous unwinding of the long positions that had so dominated the market continues.
If we were to break down below the 1.25 level, something that doesn’t look as likely now as it did 3 days ago, we could reach down to the 1.21 handle. All things being equal though, I think there is probably a much higher probability of reaching the 1.30 level over the next several weeks. If oil roles over again, that will only make this and even more bullish trend as that market has been so noisy.
Written by FX Empire