- USD/CAD shows rejected gains at 1.38 as resistance holds and recent Fed bond-buying pressures the dollar.
- Tightening rate differentials add to choppy trading, with risks below 1.37 and 1.36, while upside requires a break of 1.39.
The US dollar initially tried to rally against the Canadian dollar during the Thursday session but has given the gains back as the 1.38 level offered a significant amount of resistance. The market is currently dancing around the previous downtrend line. And while that could offer support, there are a lot of questions to be asked about whether or not the fund reserve is actually going to lose in monetary policy. After all, the Federal Reserve did announce that they were buying $40 billion worth of bonds every month now. And while they don't want to call it quantitative easing, that's exactly what it is.
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Interest Rate Differential Tightens
With this being the case, the US dollar finds itself in a little bit of trouble. And the interest rate differential between the two countries has tightened. With this, it continues to see a lot of choppy behavior, and we may end up dropping below the 1.37 level, which, of course, would be very negative.
But the 1.36 level being broken underneath that level is probably a completely different story. You would have to be cautious in that area. And it's very possible that we have a real situation where we are going to end up carving out a range yet again, which is the norm for this pair overall.
If we turn around and break above the 1.39 level, that opens up quite a bit of bullish pressure, but right now it doesn't look like we're ready to do that. It seems the market is just chopping around and trying to figure out where to go next, although it certainly looks a lot like a market that is trying to sort out where to go next and whether or not we have any real momentum in either direction.
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