The US dollar rallied rather significantly during the trading session on Friday as we continue to see the US dollar strengthen against multiple currencies around the world. This is obviously a US dollar move, because oil looks rather strong, which should help the Canadian dollar. However, if the market were to reach towards the 1.25 handle, I think we are going to make serious decisions as to where we are going longer term. There is a band of noise between 1.25 and 1.26, and a breakout above that level would be a very positive sign.
However, it is possible that we may turn right back around as we have gotten a bit overbought, so the question now is whether or not we would fall based upon exhaustion. Looking at this chart, if we break down below the 1.24 level, I think that it is very likely that the pair will drop back down to the 1.22 level as we have been in a downtrend for ages.
When you look at this chart from a longer-term standpoint, it is very likely that the area should be resistance, so I think as we kick off next week it will come down to how traders look at what the Fed has been saying. Yes, they did get a bit more hawkish, but at the end of the day are they going to do anything anytime soon? I do not think the answer is yes, so I still believe that we are in a downtrend. What is worth noting is that the 200-day EMA sits just above the 1.26 level, so that is another reason to pay close attention to that area.
Ultimately, this is a market that I think is going to have a couple of choppy days ahead of it, and then we should make some type of significant move. Like I said, the fact that the Canadian dollar has been losing strength while oil has been holding firm tells me this is all about the greenback. In other words, if we see the dollar lose strength elsewhere, it will almost certainly lose it here. However, if we continue to see massive amounts of bullish pressure in the greenback overall, then I think this is an area that will eventually be broken through.
