- The US dollar has rallied a bit during the early hours on Wednesday, as we are hanging around the 1.42 level, an area that has been important multiple times in the past.
- Furthermore, you should start looking at this through the prism of “market memory”, as it had been a major resistance barrier for so long.
- Whether or not the market can continue to go higher remains to be seen, but at this point in time I do think that the longer-term trajectory still favors the United States over Canada.
Tariffs
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A lot of what we had seen previously is the worry of tariffs on Canada being priced into the currency markets. Because of this, we saw a massive spike higher, only to turn things back around as it was suggested that the tariffs would be halted for 30 days while something could be worked out. Whether or not that actually happens remains to be seen, and quite frankly at this point in time the rhetoric between Canada and the United States is in exactly where it needs to be to bring in a lot of confidence.
Furthermore, you need to keep in mind that the Canadian economy has a lot of its own issues anyway, regardless of what Donald Trump decides to do. The Bank of Canada continues to look very loose with its monetary policy while the Federal Reserve has to keep monetary policy tight, and higher for longer. With this being the case, I think we’ve got a situation where US dollars continue to be much more favorable. After all, Canada doesn’t really have a functioning government at the moment, and therefore it’s difficult to imagine a lot of confidence.
If we were to break down from here, then we could go looking to the 1.40 level, where the 200 Day EMA is currently residing. On the other hand, if we were to break above the 1.43 level, then the market is likely to go looking to break higher, perhaps reaching the 1.45 level. That being said, I would expect a lot of noisy behavior in this market. I still favor the upside, but I also recognize that we have a lot of nonsense to filter through.
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