The US dollar initially tried to rally during the trading session on Wednesday but gave back the gains after the FOMC statement came out and suggested that we will continue to see a lot of negativity. At this point, the market looks as if it is going to threaten the 1.24 level and go much lower. I do believe that longer term we probably will go looking towards the 1.20 handle, as long as the oil market continues to rise. Furthermore, we will also have to pay attention to how people look at the US dollar in general.
It is not until we break above the 50-day EMA that I would be a buyer, and as a result it will be difficult to imagine a scenario where I would do so anytime soon. The market is a bit oversold, so I think it makes sense to look for opportunities to short this market after short-term rallies, as we certainly cannot be buyers in a trend that is so strong.
I do anticipate a lot of noise, but we have seen a lot of inflation in the Canadian economy, at least in relation to America. Furthermore, the most recent jobs number in Canada was very strong, so that is a very bullish sign for the Canadian dollar as well. This is a market that I have no interest in trying to get too cute with, so I will simply wait for an opportunity to take advantage of the negativity. I will use the correlation between oil in the Canadian dollar to get short when oil prices rise, and simply step back when oil falls.
If we did turn around and break above the 50-day EMA, then it would be a very bullish sign, but I would not pursue that trade unless oil broke down significantly. There is an uptrend line on the oil market that you need to pay attention to as well, so breaking down below that and rising above this 50-day EMA would be the “one-two punch” for a complete turnaround in this market. That would take a lot of energy, so at this point I do not think that it is likely, especially as the Federal Reserve has reiterated its desire to remain accommodative.
