The US dollar has rallied initially during the trading session on Monday against the Canadian dollar, as the oil markets continue to sell off. The oversupply of crude oil is going to become an issue, and I think it’s only a matter of time before oil sells off any rallies that appear. As this market is negatively correlated to the oil markets, when we pull back there should be buyers eventually. The most likely candidate is the 1.25 level underneath, as it is a large, round, psychologically significant number, and the scene of support already. That of course is assuming that we even pull back to that area.
Longer-term, I think that the market should go looking towards the 1.29 level, which is the beginning of significant resistance extending to the 1.30 level. Unless the crude oil markets absolutely tank, it’s likely that we are going to see this pair settle into a 500 pips range for the time being. The economies are highly correlated, so it’s quite common to see this pair go sideways in general. However, if oil markets continue to sell off drastically, then I think this will be more of a grind higher. I don’t have any interest in selling this pair, at least not until oil finds buyers, and even then, I would be a bit suspicious because I think that oil is recovering from being far too overpriced.
Written by FX Empire